How to Create a Tax Invoice: The Step-By-Step Process
To create a tax invoice, the seller must issue a record of purchase, providing the details of the purchase, including the type of product or service provided, the quantity, the agreed-upon price along with the tax amount for each item.
To claim back the taxes that they have paid on the purchase for their business, the buyer must have a valid tax invoice from the supplier. The tax invoice serves as the primary evidence to support an input tax credit claim.
What this article covers:
- What Is Tax Invoice?
- What Does a Tax Invoice Need to Include?
- How to Make a Tax Invoice
- What Is a Recipient Created Tax Invoice?
- What Is a Tax Invoice Used For?
What Is Tax Invoice?
A tax invoice shows the taxes on goods and services. It’s an itemized list of charges for individual products sold or services rendered along with the indirect tax amount for each product and service.
A tax invoice needs to include the description of the product or service, quantities, date of shipment, mode of transport and prices. It also includes the total value and the tax charged on the supply.
What Does a Tax Invoice Need to Include?
A tax invoice needs to include the following mandatory details:
- Invoice number and date
- Customer name
- Shipping and billing address
- The words ‘tax invoice’ clearly displayed
- Sellers identity and business number
- A description of the goods and services, their quantities and price
- The tax applied for each item
- The total value including tax
- Signature of the supplier
How to Make a Tax Invoice
To make a tax invoice in Microsoft Word, follow the steps below:
- Open a blank document and enter the words Tax Invoice as the header
- On the right side of the header, enter your business’s details. Include the name, address, phone number, email and logo
- Underneath and on the left-hand side, write your client’s information
- Enter the date prepared and the due date along with the unique invoice number on the right-hand side
- In the body of your invoice, break down products or services into line item descriptions, along with charges associated with each
- Calculate the total amount, including applicable taxes, delivery fees, etc. It’s helpful to put the grand total in a bold font so that it clearly stands out.
- In the notes, indicate the method of payment and other relevant details.
What Is a Recipient Created Tax Invoice?
Instead of being issued by the supplier, a recipient created tax invoice is a tax invoice that is issued by the buyer of the products or services. These invoices can be issued only when there’s a written agreement between the recipient and the supplier that is current and effective.
Along with the other details of a tax invoice, this form of tax invoice should prominently state the words “recipient created tax invoice”.
The recipients must issue the tax invoice to the suppliers within 28 days of the sale. They should also retain the original or a copy of the invoice for tax purposes.
What Is a Tax Invoice Used For?
The main objective of tax invoices is to take advantage of tax credits. They play a role in recognizing transactions in a state’s tax system. For accounting purposes, the tax invoices are submitted to relevant authorities at the end of every financial year to provide financial relief.
For the government, tax invoices are important as they prevent tax evasion.
In addition to including the relevant details on the invoices, it’s important that the tax invoices are issued on time. Ideally, the invoice is issued when goods are supplied to the recipients or when the products reach the customers. For services, tax invoices are issued within thirty days after providing the services. Banks and other financial institutions should issue the tax invoice within forty-five days.