Bill of Supply vs Tax Invoice Under GST

A bill of supply is what you issue instead of a tax invoice when there is no GST to charge on the supply. Two situations trigger it: you are supplying goods or services that are exempt, or you are registered under the composition scheme and are not permitted to collect tax from your customer at all. The practical consequence is the same in both cases — the document shows no tax rate and no tax amount, and the person receiving it cannot claim any input tax credit against it.

What a bill of supply is

Section 31 of the CGST Act sets out when a registered person must issue a tax invoice, and then carves out the cases where a different document is required instead. Where a registered person is supplying exempted goods or services, or is paying tax under the composition scheme in section 10, the Act says they shall issue a bill of supply rather than a tax invoice. The particulars that go on it are prescribed separately in the CGST Rules, and they are a deliberately shorter list than the tax-invoice particulars, because most of the fields a tax invoice needs exist only to describe the tax being charged.

It helps to think about the two documents by what they are for rather than by what they look like. A tax invoice is the instrument that transmits input tax credit down the supply chain: it records that tax was charged, at what rate, and on what value, and it is the recipient's evidence for claiming that tax back. A bill of supply transmits nothing of the sort. It is a commercial record of a supply on which no tax arose, issued so that the transaction is documented, reported and auditable — not so that anyone can claim credit from it.

"Exempt" in this context is broader than it first appears. It covers supplies that are wholly exempt by notification, supplies taxed at a nil rate, and supplies that fall outside GST altogether. All three sit under the same documentation treatment. What it does not cover is exports and supplies to SEZ units, which are zero-rated rather than exempt — those still go out on a tax invoice, with the prescribed export endorsement on it, because zero-rating preserves the credit chain rather than breaking it.

Who has to issue one

In practice the population of bill-of-supply issuers falls into three groups.

• Composition dealers. A taxpayer registered under section 10 pays a small percentage of turnover out of their own pocket and is expressly barred from collecting GST from customers. Everything they sell goes out on a bill of supply, taxable in nature or not. The turnover ceilings and category restrictions are covered in our guide to the GST composition scheme limit.
• Suppliers of exempt goods or services. A regular registered taxpayer who happens to make an exempt supply issues a bill of supply for that supply, while continuing to issue ordinary tax invoices for their taxable ones. Plenty of businesses do both in the same month.
• Businesses whose entire output is exempt. If everything you supply is exempt you may not be required to register at all, but if you are registered — voluntarily, or because of another trigger such as a reverse-charge liability — your outward documents are bills of supply.

One case that trips people up: reverse charge. When the recipient is liable to pay tax under the reverse charge mechanism, the supplier does not charge tax on the document, but the supply is still a taxable supply. The correct document there is a tax invoice carrying the statement that tax is payable on reverse charge — not a bill of supply. The distinction matters because the recipient needs a tax invoice to support the credit they will claim after paying the tax themselves.

What goes on each document

The two field lists overlap heavily. The difference is concentrated in the tax block and in the fields that only exist to determine the tax treatment.

Two practical notes on the table. First, the HSN or SAC requirement does not go away just because no tax is being charged — exempt supplies still get classified, and the code drives how the supply is reported. If your item masters are thin on this, our explainers on HSN codes and SAC codes for services cover how the digit requirements work. Second, there is a relaxation for very small-value supplies to unregistered customers who do not ask for a document, with a consolidated document raised at the close of the day instead. The threshold is a specific rupee figure in the rules — confirm the current value on cbic-gst.gov.in before you build it into a point-of-sale flow.

The composition declaration line

This is the single most commonly missed requirement on a composition dealer's paperwork. The CGST Rules require a composition taxpayer to state, at the top of every bill of supply they issue, that they are a composition taxable person and are not eligible to collect tax on supplies. A parallel rule requires a similar notice — the words identifying them as a composition taxable person — on the signboard displayed at their principal place of business and at every additional place of business.

Print the prescribed wording exactly as the rule states it. This is one of those places where a helpful paraphrase is worse than a literal copy: the line exists so that a customer looking at the document immediately understands why there is no tax on it and why they should not go looking for credit. A softened version like "composition scheme — tax not applicable" does not do that job and is not what the rule asks for.

Why the recipient gets no input tax credit

Input tax credit is a credit of tax that was actually charged on an inward supply. A bill of supply charges none, so there is nothing to credit — this is not a documentation technicality that a better-drafted document could get around. If you are on the buying side, the whole amount on a bill of supply is cost, and it should be booked as cost from the start rather than parked in a GST input ledger to be sorted out at reconciliation.

The same logic explains something AP teams notice at reconciliation time: purchases from a composition dealer never show up as credit in your GSTR-2B. There is no tax on the transaction to flow through the system, so no credit appears. If someone in your team has flagged a composition vendor's bills as "missing from 2B", the correct resolution is to reclassify them as non-creditable purchases, not to chase the vendor. The general conditions that do have to be met for a valid claim are set out in our input tax credit rules explainer.

The cost sits on the seller's side too. A composition dealer cannot claim ITC on their own inward supplies, which is the trade-off for the lower flat rate and the lighter return burden. That is why the scheme suits businesses selling mostly to end consumers, and rarely suits a business whose customers are registered taxpayers who want credit.

Invoice-cum-bill-of-supply for mixed sales

A general store sells rice and biscuits in the same basket. One is exempt, one is not. Raising two separate documents for one till transaction is clearly absurd, and the CGST Rules provide for exactly this: where a registered person supplies taxable as well as exempted goods or services to an unregistered person, a single "invoice-cum-bill-of-supply" may be issued for all such supplies.

Three things about how this actually works:

1. It is limited to unregistered recipients. If the buyer is a registered person, issue a tax invoice for the taxable items and a bill of supply for the exempt ones, so the tax invoice carries only what the buyer can actually claim.
2. The lines still have to be separable. The taxable lines carry their rate and tax amount; the exempt lines carry a value and no tax. A single blended total defeats the point, and will not reconcile with your outward-supply reporting.
3. It does not create a new tax treatment. The document is a packaging convenience. Exempt stays exempt, taxable stays taxable, and the values still go into the correct places when you file GSTR-1.

A composition dealer cannot use this document, incidentally, because they have no taxable-invoice side to combine — everything they issue is a bill of supply.

Issuing the wrong document

The error that actually costs money is charging tax on a document where you were not entitled to charge it — typically a composition dealer whose billing software was never switched out of regular mode, or a supplier who treated an exempt line as taxable because the item master was stale after a rate change. Under the GST law, a person who is not entitled to collect tax must not collect it, and any amount that has been collected as tax has to be paid over to the Government whether or not the underlying supply was actually taxable. You cannot net it off, and you cannot keep it because "the customer did not mind". There are also penalty provisions for unauthorised collection; the amounts are specified in the Act, so check the current text on cbic-gst.gov.in rather than relying on a number from a blog.

The mirror error is milder but still worth fixing: issuing a bill of supply for something that was in fact taxable. Here you have under-collected, and the tax liability is still yours. You will need to raise the correct document and recover the tax from the customer if your contract allows it — which is a commercial conversation you would rather not be having months later. Both errors have the same root cause, which is a product master where the exempt-versus-taxable flag is not maintained with the same care as the price.

Numbering, records and returns

A bill of supply needs its own consecutive serial number, unique within the financial year. You may run a separate series from your tax invoices — most businesses do, and it makes reconciliation far easier — but whichever way you go, the series must be continuous and gaps must be explainable. Cancelled numbers should be recorded as cancelled rather than reused.

On the reporting side, exempt and nil-rated outward supplies are reported in the dedicated part of GSTR-1 meant for them rather than in the invoice-level tables, and they feed the exempt-supply figures in your monthly summary. A composition dealer files on a different rhythm altogether — a quarterly statement in CMP-08 with the payment, and an annual return in GSTR-4 — rather than the monthly GSTR-1 and GSTR-3B cycle a regular taxpayer runs. If you are unsure which cycle applies to a particular registration, the taxpayer type on the GSTIN record tells you, and the current due dates are in our GST return due dates reference.

One last habit worth building. When you onboard a vendor, capture whether they are a composition taxpayer at that point and set the expected document type on their master record. It takes a minute at onboarding and removes an entire category of AP query later — the one where someone spends an afternoon looking for credit that was never going to exist.

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