What are the Differences Between Tax Invoices, Bills, Delivery Challans and Purchase Orders

Do you know what a Tax Invoice, Bill, Delivery Challan and Purchase Order are and when we should use them? In this article, you will learn about the differences between these four commercial documents.

What is a Tax Invoice?

A Tax Invoice, also known as a Sales Invoice, is a legally binding document issued by the seller to the customer. As it records sales transactions, Tax Invoices are mandatory and important in the bookkeeping and accounting process.

It includes the details such as:

  • Name and address of the buyer and supplier
  • Date of the invoice
  • GSTIN details of both, if they are GST registered
  • Details of the goods or services sold, such as description, quantity and price.
  • Inventory code if the goods or service has it
  • Discount or deposit (if any)
  • Payment method, terms and conditions
  • Supplier's company logo

Sellers can issue a Tax Invoice to the buyers before or after delivering the goods or service. It creates an obligation to the buyer to make a payment on time. Once The buyer pays, the Tax Invoice number will be generated, which should be mentioned on the Sales Receipt.

You can issue a Tax Invoice with Kernel software and share it with your customer by email.

What is Delivery Challan?

Delivery Challan is a legal document issued when goods are transported between locations. This document is essential for accounting and business management processes. It is sent with the delivery of the goods. By accepting the Delivery Challan, the buyer confirms the delivery of goods.

Delivery Challan consists of the following details:

  • Buyer's and seller's name, address
  • Date of the shipment
  • The description and quantity of the goods
  • Code of goods or services

The difference between the Delivery Challan and Tax Invoice

A Tax Invoice serves as legal proof of ownership of goods/services, carrying all the risks and liabilities associated with it; it indicates the actual value of the goods.

The customer acknowledges receipt of goods on the Delivery Challan but does not carry legal obligations.

In most cases, it is used when moving goods between locations, describing the quantity, condition, and description of the goods. It may not result in a sale.

It does not indicate the actual value of the goods; Also, Delivery challans can list the value of the goods but will not consist of the tax charged to the customer.

The Difference Between Tax Invoice and Purchase Order

The Purchase Order is generally created before the delivery of goods and services, whereas the Tax Invoice is usually issued after delivery.

Essentially, the Purchase Order is a contract between the buyer and supplier where the buyer specifies the goods or services to be provided by the supplier.

It includes the details such as:

  • Purchase Order number,
  • Price of the goods or services per supplier,
  • Description of the goods.

As part of this process, the supplier's price is controlled, and the best supplier is identified from the market to receive value for money and ensure a high-quality level.

The Difference Between Tax Invoices and Bills

Suppliers create Bills when they need immediate payment from the customer as a request for payment. It is acceptable to receive a Bill without a Tax Invoice. Unlike a Bill, a supplier issues a Tax Invoice for a customer, including details about the goods or services delivered, quantity, and the amount the supplier expects the customer to pay.