Quotation vs Proforma Invoice vs Tax Invoice: Key Differences
Understand when to send a quotation, a proforma invoice or a GST tax invoice, what each must contain, and which one is legally binding for tax purposes.
Small businesses often use the words quotation, estimate, proforma and invoice interchangeably. They are not the same. Each document sits at a different point in the sale, carries a different legal weight, and has a different effect on your GST liability. Sending the wrong one can confuse a customer, delay payment or, worse, create a tax liability you did not intend.
Need one now? Make a professional Quotation, Proforma Invoice or GST Tax Invoice for free, directly in your browser.
The sales journey in one line
Enquiry → quotation (or estimate) → purchase order from the buyer → proforma invoice (if an advance or import paperwork is needed) → supply → tax invoice → payment receipt.
Not every sale uses every step. A shop counter sale jumps straight to a tax invoice or cash memo. A large project may go through several revised quotations first.
Quotation
A quotation is your offer: "this is what we will supply, at this price, on these terms, until this date". It answers a buyer's enquiry and lets them compare vendors.
What a good quotation includes
- Your business name, address, contact details and GSTIN.
- Quotation number and date, and a validity period (for example 15 or 30 days).
- Customer name and reference to their enquiry.
- Itemised description, quantity, unit price, discount and GST rate for each line.
- Whether prices include or exclude GST, freight, installation and insurance.
- Delivery timeline, payment terms (advance, credit days) and warranty.
A quotation has no GST consequence: no tax is payable because nothing has been supplied. It can become part of a contract once the buyer accepts it, usually by issuing a purchase order, so state your terms clearly.
Quotation vs estimate
An estimate is an approximate price, common for repair, construction and service work where the final quantity is not known. A quotation is a firmer, fixed price. If the final bill might vary, call it an estimate and say so.
Proforma invoice
A proforma invoice looks like an invoice but is a preliminary bill sent after the buyer has agreed in principle and before the goods or services are supplied. The word "proforma" means "as a matter of form".
When to use one
- To request an advance payment before you start work or dispatch goods.
- When the buyer needs a document to raise internal approval or open a letter of credit.
- For import and export paperwork, where banks and customs brokers often ask for one.
- To confirm the final commercial terms after negotiation.
Legal and tax position
A proforma invoice is not a tax invoice under GST. The buyer cannot claim input tax credit on it, and you should not record it as a sale in your books or in GSTR-1. Mark it clearly with the words "Proforma Invoice" and ideally "This is not a tax invoice".
Be careful with advances. Under GST, an advance received for services generally triggers tax at the time of receipt, and you must issue a receipt voucher. For most goods, tax on advances is not payable at the time of receipt. Check the time-of-supply rules with your tax adviser if you take large advances.
Tax invoice
A tax invoice is the legal record of a completed (or billed) taxable supply. It creates your GST liability and is the document your registered buyer uses to claim input tax credit. It must contain every field required by CGST Rule 46, follow a consecutive numbering series of up to 16 characters, and be issued within the time limits: for goods, before or at the time of removal or delivery; for services, generally within 30 days of supply.
Our guide How to Make a GST Invoice covers the mandatory fields, HSN digits and CGST/SGST vs IGST in detail.
Side-by-side comparison
| Point | Quotation | Proforma invoice | Tax invoice |
|---|---|---|---|
| Stage | Before the order | After agreement, before supply | At or after supply |
| Purpose | Offer a price | Confirm terms, request advance | Bill the supply, record tax |
| Legally binding? | Becomes binding once accepted | Commercial commitment, not a tax document | Yes, statutory document |
| GST liability | None | None (but advances for services may attract tax) | Yes |
| Input tax credit for buyer | No | No | Yes, if all conditions are met |
| Entered in books and GSTR-1 | No | No | Yes |
| Numbering | Your own series | Separate series | Consecutive, unique per financial year, max 16 characters |
| Can it be revised? | Yes, issue a revised quote | Yes, reissue | No; use a credit or debit note |
Which one should you send?
- A customer asks "how much will it cost?" → send a quotation (or an estimate if the scope is uncertain).
- The customer says "yes, send details so we can pay the advance" → send a proforma invoice.
- You have delivered the goods or completed the service (or a billing milestone) → issue a tax invoice.
- Payment received → issue a receipt if the customer needs one.
Practical tips
- Keep separate number series for quotations, proformas and tax invoices, for example QT/25-26/001, PI/25-26/001 and INV/25-26/001. Never let a proforma number consume a tax invoice number.
- Carry the quotation or purchase order number onto the proforma and the tax invoice so the trail is easy to audit.
- Always state the validity date on quotations. Prices of raw materials and GST rates can change.
- If GST rates change between the quotation and the invoice, the tax invoice must use the rate applicable at the time of supply. Say in your quotation that taxes are "as applicable at the time of invoicing".
- When you convert a proforma into a tax invoice, check that quantities and prices match what was actually supplied.
Get started: create a Quotation, convert it to a Proforma Invoice, and bill with the GST Invoice Generator. All three are free and run entirely in your browser.
Frequently asked questions
Can a buyer claim input tax credit on a proforma invoice?
No. Input tax credit can be claimed only on a valid tax invoice (or debit note) issued under GST. A proforma invoice is a preliminary document.
Is a quotation legally binding?
A quotation is an offer. It usually becomes binding when the buyer accepts it, for example by issuing a purchase order, and the terms stated in it then form part of the contract.
Should a proforma invoice show GST?
It can show the GST that will be charged so the buyer knows the full amount, but it must be clearly labelled as a proforma invoice and not a tax invoice.
What is the difference between an estimate and a quotation?
An estimate is an approximate price used when the final scope is uncertain. A quotation is a fixed price for a defined scope, valid for a stated period.