The distinction
| Tax invoice | Bill of supply | |
|---|---|---|
| Issue when | Registered, making a taxable supply | Exempt supply, or you are a composition dealer |
| Shows tax | Yes, itemised | No |
| Buyer can claim ITC | Yes | No |
| Must state | Place of supply, tax rate and amount | That it is a bill of supply |
A composition dealer cannot collect tax from a customer, so there is no tax to show and nothing for the customer to claim. An exempt supply carries no tax for a different reason — the supply itself is outside the charge — but the document is the same.
What a bill of supply must carry
- The words “Bill of Supply”.
- Your name, address and GSTIN.
- A consecutive serial number, unique for the financial year, on the same 16-character rules as an invoice.
- The date of issue.
- The recipient's name and address, and GSTIN if registered.
- HSN or SAC codes, description and value of the goods or services.
- Signature or digital signature.
A composition dealer has one more obligation: the document must carry the declaration that the dealer is a composition taxable person and is not eligible to collect tax on supplies. Put it in the notes field — it is required to appear on the face of the document, not in your records.
When a single supply is partly exempt
Where a registered person supplies both taxable and exempt items to the same customer, an invoice-cum-bill-of-supply may be issued covering both — one document, taxable lines carrying tax and exempt lines carrying none.
The way to produce this here is per-item tax mode: set the tax rate on the exempt lines to zero and the taxable lines to their real rate. The summary then shows tax only against the lines that carry it, and the exempt lines sit in the same table at their full value.
Getting it wrong
The costly direction is issuing a tax invoice for an exempt supply, or as a composition dealer. You have then shown tax you were not entitled to collect, your customer has claimed a credit they were not entitled to, and both of those get unwound — usually at the customer's audit rather than yours, which is a difficult conversation to have with a client.
Which of these applies to you depends on your registration and what you supply, and neither is something a formatting tool can determine. Confirm your position with your accountant; this page describes the two documents, not which one is yours.