Invoice vs Bill of Supply
Regular dealer issues a Tax Invoice. Composition dealer or exempt supplier issues a Bill of Supply. Getting this wrong is a costly mistake.
The core difference
Tax Invoice — issued by a regular GST-registered taxpayer for a supply on which GST is collected. The invoice shows CGST/SGST/IGST amounts. The buyer can claim Input Tax Credit (ITC) on it.
Bill of Supply — issued in two cases: (a) by a Composition Scheme dealer, or (b) for an exempt supply. No tax is collected, and the buyer cannot claim ITC. The document says "Bill of Supply" not "Tax Invoice".
In short: if you collect tax, it is a Tax Invoice. If you don't, it is a Bill of Supply.
Composition scheme — who qualifies
Goods traders and manufacturers with aggregate turnover up to ₹1.5 crore (₹75 lakh in special-category states).
Restaurants (no alcohol) with turnover up to ₹1.5 crore.
Service providers with turnover up to ₹50 lakh (introduced later).
Cannot supply through e-commerce operators. Cannot supply inter-state.
Tax rates under composition: 1% of turnover (traders), 5% (restaurants), 6% (other services).
The composition dealer pays this tax from their own pocket — they cannot collect it from customers. Hence: Bill of Supply, not Tax Invoice.
Exempt supplies — examples
Education services by recognised educational institutions.
Healthcare services by authorised medical practitioners.
Unbranded food grains, fresh milk, fresh fruits, vegetables.
Specific agricultural services.
Religious services.
Services by RBI, SEBI, EPFO.
Even a regular GST dealer issuing an exempt supply must issue a Bill of Supply for that particular transaction.
Mandatory fields on a Bill of Supply
Supplier's name, address, and GSTIN.
Serial number unique for the financial year (max 16 chars).
Date of issue.
Recipient's name, address, and GSTIN (if registered).
HSN/SAC code.
Description of goods or services.
Quantity and unit.
Total value.
Signature or digital signature.
Note there are NO tax columns. That is the defining feature.
Consequences of issuing the wrong document
A composition dealer issuing a Tax Invoice and charging GST: illegal. The department can treat it as a normal taxable supply, demand the full tax, levy penalty (₹10,000 minimum per Section 122), and potentially revoke composition registration.
A regular dealer issuing a Bill of Supply for a taxable supply: results in no GST being charged to the buyer. The seller still owes GST to the department — the seller pays out of pocket. Penalty for non-compliant invoice applies.
The buyer's ITC claim can be denied if based on a Bill of Supply instead of a Tax Invoice.
Mixed cases — B2B and exempt on same transaction
If you supply both taxable and exempt items in one transaction, you can issue two separate documents, OR one combined document clearly segregating taxable and exempt portions.
On a combined document, show the tax breakup only on the taxable lines. Exempt lines show no tax. Title depends on what the majority is, but clarity trumps format — tell your buyer which lines are exempt and which are taxable.
InvoiceForge handles this natively — each line item has its own GST rate, and you can set specific lines to exempt (0% flagged "Exempt") while others carry regular rates.