Every shop owner registered under GST issues a document with each sale, but not every sale gets the same document. The question of bill of supply vs tax invoice comes up the day a supermarket starts selling fresh vegetables next to packaged foods, or the day a small trader opts for the composition scheme and is told they can no longer “charge GST”. Use the wrong one and your customer may claim credit they are not entitled to, or your return may not match your books. This guide explains, in plain language, when each document applies, what must be printed on it, and how to set up your billing so the counter staff never have to think about it.
Bill of Supply vs Tax Invoice: The Short Answer
A tax invoice is issued when you supply taxable goods or services and charge GST on them. It shows the tax separately (CGST and SGST for sales within Kerala, IGST for inter-state sales), and a registered buyer can use it to claim input tax credit.
A bill of supply is issued instead of a tax invoice in two situations, both set out in Section 31(3)(c) of the CGST Act:
- You are supplying goods or services that are exempt from GST (for example, fresh vegetables, fresh fruits or eggs sold loose).
- You are registered under the composition scheme (Section 10), so you pay tax on your turnover at a fixed rate and are not allowed to collect GST from customers.
In both cases there is no GST on the document for the buyer to claim, so the document must not show a tax amount. That single point drives every other difference.
Side-by-side comparison
| Point | Tax Invoice | Bill of Supply |
|---|---|---|
| Who issues it | Regular GST-registered sellers supplying taxable goods or services | Sellers of exempt goods/services, and all composition dealers |
| Legal basis | Section 31(1)/(2) of the CGST Act, Rule 46 of the CGST Rules | Section 31(3)(c) of the CGST Act, Rule 49 of the CGST Rules |
| GST shown | Yes: rate and amount of CGST, SGST or IGST | No tax is shown or collected |
| Input tax credit for buyer | Yes, if other conditions are met | No |
| Special wording | “Reverse charge” indication where applicable | Composition dealers must print “composition taxable person, not eligible to collect tax on supplies” |
| Typical users | Most supermarkets, electronics, textile, hardware and pharmacy counters | Composition kirana and bakery shops, fresh produce sellers, exempt service providers |
When a Shop Must Issue a Tax Invoice
If you are a regular taxpayer and the item you are selling attracts GST at any rate above zero, the sale needs a tax invoice. This covers the bulk of retail: packaged snacks, toiletries, clothing, mobile accessories, paint, medicines and so on. A regular taxpayer can also claim input tax credit on purchases, which is one reason many growing shops leave the composition scheme.
A tax invoice under Rule 46 normally carries:
- Your name, address and GSTIN
- A consecutive serial number (up to 16 characters, unique for the financial year) and the date
- Buyer’s name, address and GSTIN if the buyer is registered
- HSN code of goods or SAC of services, description, quantity and unit
- Taxable value after discounts, GST rate, and the amount of CGST, SGST or IGST
- Place of supply for inter-state sales, and whether reverse charge applies
- Signature or digital signature of the supplier or authorised person
Getting HSN codes and tax rates right on the item master is what keeps these invoices accurate. If you have not set that up yet, our guide to HSN and SAC codes in billing software walks through it.
When a Shop Must Issue a Bill of Supply
1. You sell exempt goods or services
Some goods are fully exempt from GST. A vegetable vendor in Chalai market or a fruit stall in Kozhikode that is registered under GST (perhaps because it also sells a few taxable items or supplies to hotels) issues a bill of supply for its exempt sales. Since no tax is charged, a tax invoice would be misleading.
Be careful here: exemption depends on the exact item and its form. Fresh vegetables are exempt, but the same vegetables frozen, dried or packed and labelled may fall under a different entry. Always check the current rate notification for your HSN code instead of going by what a neighbouring shop does.
2. You are registered under the composition scheme
A composition dealer pays tax on turnover at a fixed rate from their own margin. They cannot collect GST from the customer and cannot pass on input tax credit, so every sale, even of an item that would be taxable for a regular dealer, goes on a bill of supply. The words “composition taxable person, not eligible to collect tax on supplies” must appear at the top of the bill.
A common mistake is a composition kirana that still prints “GST 5%” on its bills because the billing app was set up for a regular dealer. That is exactly what the law prohibits. If you are deciding whether composition suits you, read our explainer on GST composition scheme billing first.
What a bill of supply must contain
Rule 49 keeps the format simpler than a tax invoice. A bill of supply should show:
- Your name, address and GSTIN
- A consecutive serial number (up to 16 characters, unique for the financial year) and the date
- Buyer’s name, address and GSTIN or UIN, if registered
- HSN code of goods or SAC of services
- Description of goods or services
- Value of supply, after any discount or abatement
- Signature or digital signature of the supplier or authorised person
Notice what is missing: no tax rate, no tax amount, no CGST/SGST split.
Mixed Carts: Taxable and Exempt Items in One Bill
This is where supermarkets usually get confused. Picture a customer at a supermarket in Thrissur buying a bag of onions, a dozen eggs, two packets of biscuits and a bottle of shampoo. The onions and eggs are exempt; the biscuits and shampoo are taxable. Does the cashier print two bills?
Rule 46A of the CGST Rules answers this for sales to unregistered customers (which is most retail walk-ins). A registered person supplying both taxable and exempt goods to an unregistered person may issue a single “invoice-cum-bill of supply” covering all of them. In practice, one printed bill lists every item, with GST worked out only on the taxable lines and the exempt lines shown at nil tax.
For registered business customers, such as a hotel buying vegetables and cleaning supplies from you, Rule 46A does not apply, so the safer route is a tax invoice for the taxable items and a separate bill of supply for the exempt ones. Confirm the approach with your tax consultant if you have many such buyers, because practices vary.
A worked example
Suppose a regular-registered supermarket sells the following to a walk-in customer:
- Onions, 2 kg: exempt
- Eggs, 12 nos: exempt
- Biscuits, 2 packets: taxable at the applicable rate
- Shampoo, 1 bottle: taxable at the applicable rate
The invoice-cum-bill of supply shows all four lines. The onion and egg lines carry zero tax. The biscuit and shampoo lines carry their own CGST and SGST amounts, and the tax summary at the bottom totals GST only for those two. In GSTR-1, the taxable lines go into B2C supplies and the exempt value goes into the nil-rated, exempted and non-GST section. Software that tags each item correctly does this split automatically; doing it by hand at month end is where errors creep in. Our post on preparing GSTR-1 from billing software covers that step.
Common Mistakes Shops Make
- Composition dealers showing GST on bills. Even if the amount is “included”, it should not be printed as tax collected.
- Using one item master for everything. If fresh produce is created with a default taxable rate, every bill becomes wrong without anyone noticing.
- Separate number series not planned. Many shops keep separate series for tax invoices and bills of supply. Whatever you choose, numbering must be consecutive and unique for the financial year.
- Forgetting the switch after leaving composition. When a shop moves from composition to regular registration, the bill header and tax settings must change from the effective date, not when the accountant remembers.
- Letting staff choose the document type. Cashiers should never decide this at the counter. The item and the shop’s registration type should decide it.
How to Set Up Your Billing Software for Both Documents
Whichever software you use, these five settings remove most of the risk:
- Set your registration type correctly. Regular or composition. For composition, the bill title should read “Bill of Supply” and include the mandatory declaration line, with no tax columns.
- Tag every item with an HSN code and tax rate, including exempt items. Mark exempt items as exempt or nil-rated rather than leaving the field blank.
- Configure number series. Decide whether tax invoices and bills of supply share a series or run separately, and lock it before 1 April.
- Test a mixed cart. Bill one taxable and one exempt item together and check that the tax summary only shows GST on the taxable line.
- Check the monthly report. Your sales report should split taxable, exempt and nil-rated values, ready for your return.
The pillar guide on GST billing software for retail shops in India explains what else to look for, and our checklist for GST invoice software for shops lists the invoice fields to test during a demo.
If you want billing that handles GST invoices, barcode billing and stock in one place, download Caddayn Biller and set up your item master with the correct tax rates from day one. It runs as a Windows app and a web app, so the counter and the back office see the same data.
Frequently Asked Questions
Can a buyer claim input tax credit on a bill of supply?
No. A bill of supply does not show any GST charged, so there is no tax for the buyer to claim as credit. This is one reason business buyers sometimes prefer regular-registered suppliers.
Is a bill of supply needed for very small sales?
The CGST Rules allow a relaxation for low-value sales to unregistered buyers who do not ask for a bill, with a consolidated document issued at the end of the day. The threshold and conditions are in the provisos to Rule 46, which also apply to bills of supply. Check the current rule text with your consultant before relying on it.
Can a composition dealer issue a tax invoice?
No. A composition dealer must issue a bill of supply for all outward supplies and cannot collect GST from customers. If you need to issue tax invoices, for example because your business buyers want input tax credit, you would need to move to regular registration.
Is “invoice-cum-bill of supply” the same as a tax invoice?
Not exactly. It is a single document allowed under Rule 46A for a registered seller supplying both taxable and exempt goods to an unregistered buyer. It contains the details of a tax invoice for the taxable items and the details of a bill of supply for the exempt items.
Where can I read the official rules?
The CGST Act and CGST Rules, including Sections 10 and 31 and Rules 46, 46A and 49, are published on the CBIC GST portal. Rates for individual goods are notified by the government and can change, so confirm the rate for each HSN code before you configure it.