What Is a Tax Invoice? How to Create a Tax Invoice: The Step-By-Step Process

What Is a Tax Invoice? How to Create a Tax Invoice: The Step-By-Step Process

Ayushi Somani
Ayushi Somani
Table of Contents
Table of Contents

If you are a business owner or an accountant, you need to understand the process of tax invoicing. Tax Invoicing is an important part for any business, the better you know it, the well you will be able to understand the process of filing the tax for a business.

Photo by Towfiqu barbhuiya / Unsplash

Creating a tax invoice requires a list of items with correct details. The details when included wrong, the tax invoice becomes faulty and is to be discarded to create a completely new one. The items to be included are

  • Correct details of the purchase
  • Type of the service or the product
  • The price set by the business and the buyer both
  • Tax amount applicable for each item

The company requires issuing tax invoices to the customer for the company to charge tax for the product or the service sold. The tax invoice issued acts as proof of tax charged and helps in claiming the tax credits.

Let us understand the function and making of tax invoices in detail in the article.

What will you find in this article-

  • What is a Tax Invoice?
  • Why is a Tax Invoice Created?
  • What to include in a Tax Invoice?
  • How to create a Tax Invoice?
  • Is Tax Invoice a bill?

What is a Tax Invoice?

A business has to charge a tax amount each time sale of a service or a product takes place. Tax invoice acts as evidence of the tax amount charged on the sale of a product or a service. A tax invoice includes a list of all the charges and taxes that are applicable to the respective products or services rendered.

The description in the tax invoice should be thoroughly checked and corrected.

What to Include in a Tax Invoice?

Building a tax invoice requires a lot of information. However, not all the information is mandatorily mentioned or included in the tax invoice. A tax invoice includes complete detail of the sale made. These are the details included in an issuable tax invoice –

  • Quantity of the product or the services sold
  • Price of each product or service sold
  • The date when the sale was made
  • The mode of transportation
  • A total number of products and services
  • Tax and other charges are applicable

Why is a Tax Invoice Created?

A tax invoice is created to take the profit out of tax credit. The tax system of the country demands businesses to keep a record of all the transactions and tax amounts charged. For accounting purposes, these tax invoices are presented to the authorities in the tax system of the country for inspection and record keeping. The tax invoices are submitted at the end of each year for the business to receive financial relief.

The government demands tax invoices to ensure businesses are not committing tax evasion practices along with generating revenue.

Issuing an invoice is a task done with a lot of specifications. Mentioning all the details of the transaction in the invoice is needed and mandatory. At the same time, it is essential to issue the invoice at the right time.

  • If goods are being sold, the tax invoice should be issued at the time of payment or at the time of delivery.
  • If services are being provided, the tax invoice should be generated within 30 days of the task performed.
  • If the transaction is being performed by any financial institute or a bank, the invoice is generated within forty-five days.

How to Create a Tax Invoice?

A tax invoice can be created in different places. Back in the day, manual hard-copy invoices were used to run the operation. With the change in technology, tax invoices have become digital too. Here are the steps to create a simple tax invoice in Microsoft Word.

  1. Open a new document in word.
  2. With center alignment, type “Tax Invoice” as the header of the invoice.
  3. Mention your company details on the top right side under the footer.
  4. The details include Name, Address, Email Id, Contact Number, and the Logo of the company.
  5. On the left side underneath company information comes client information.
  6. On the right-hand side enter the Date, Due Date for the invoice, and the invoice number.
  7. Now comes the table.
  8. The products and services sold will be entered with the description in each line. The price of the sales should be entered against it.
  9. Calculate the total sale price. Insert the tax charges, service charges, delivery cost, etc. Add them all up and enter the total amount.
  10. In the end, make notes section and enter the payment details there.
  11. Make sure to highlight the total amount and payment details.

How can Deskera Books Help?

Another great and efficient way to generate invoice is with Deskera Books. Deskera Books is accounting software that makes your operations swift. You can create invoices, bills, manage expenses, record inventory, record payments, receive payments, prepare financial reports, manage books, and a lot more.

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Is Tax Invoice a Bill?

Tax invoice works as legal payment instruments for a company. The seller generates the tax invoices and the buyer is supposed to pay the amount in full. The tax invoice includes complete information of the seller as well as the buyer. It includes all the details and description of the sale made, the taxes charged, as well as all the other charges.

It includes any discount given on the sale. The terms of the payment and sale are mentioned in the tax invoice. The invoice asks the buyer for payment and later acts as a document of proof.

Photo by Chanhee Lee / Unsplash

Bill on the other hand has basic information about the sale and no information about the buyer. It does not include the terms of the sale. Bills have very limited information on the prices, taxes, and extra charges.

It does not have detailed information on the products and services sold. Bill generally does not have a special number. Even if it has a special number it cannot act as legal proof. Bill acts as proof of the transaction whereas a tax invoice acts as a token of the deal.

Key Points

-         A Tax Invoice is an instrument used by a business to charge the payment of sale made. The tax invoice also acts as legal proof of the payment received and tax charged.

-         Details that a Tax Invoice includes

  • Quantity of the product or the services sold
  • Price of each product or service sold
  • The date when the sale was made
  • The mode of transportation
  • A total number of products and services
  • Tax and other charges are applicable

A Tax Invoice and a bill are two different instruments a business uses. A Tax Invoice acts as a demand for payment along with tax and other charges. It holds detailed information about the seller, the buyer, and the sale made. The bill on the other hand is just a token demanding payment with limited information.

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