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What Is a Tax Invoice?

A tax invoice is an invoice sent by the registered dealer to the purchaser showing the amount of tax payable. It includes the description, quantity, value of goods and services and the tax charged.

If you make a taxable sale, your tax-registered customers need an invoice from you to claim their tax credits for purchases. It is issued when the goods are sold with the objective of resale.

What this article covers:

What Do You Mean by Tax Invoice?

Businesses need to charge various taxes (HST, GST and VAT) from their customers on the products and services and report it to the government. A tax invoice is issued by one registered vendor to another to get input tax credit. It is just a summary invoice that can be used for GST/HST whether you report monthly, quarterly, or annually. A tax invoice must be issued when your customer is GST registered.

  • A tax invoice may consist of the following details:
  • Contains the words “Tax Invoice”
  • Name, address and contact details of the seller
  • Invoice Number
  • Date of issue of the invoice.
  • Name and Address of the buyer
  • Tax Identification Number
  • The quantity of goods/services
  • The price per unit
  • Total amount including taxes
  • Tax charged for each item
  • Payment details

At the end of the financial year, invoices are sent to the relevant tax authorities.

Is Tax Invoice a Receipt?

Invoices and receipts are generated by sellers and vendors and issued to buyers, customers or clients. While the information on a tax invoice and a receipt may be similar, a tax invoice is not a receipt.

An invoice is a request for payment for a sale of goods or services provided by the seller to the customer. It includes prices, credits, discounts, taxes and total due.

A receipt, on the other hand, is documentation that payment has been made to finalize a sale. It serves as proof of ownership in most cases. It lists goods or services, prices, credits, discount, taxes, the total amount paid and method of payment.

While invoices are used to request payment from customers, receipts are used to prove that the customer paid for an item.

Why Is a Tax Invoice Necessary?

The requirement for tax invoices is different in varying countries implementing GST. A tax invoice is necessary for the following purposes:

  • To support a registered person’s claim for the deduction of input tax incurred on his standard rated purchases
  • To determine the supplies that should be included in the taxable period
  • Determine the time in which the claim for input tax can be made based on the tax invoice received from his supplier
  • The date of the tax invoice will define when the input tax is to be accounted for

Using an accounting software can help in the calculation of taxes and make the invoicing process much simpler.

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