In this guide 6 sections
A tax invoice records a taxable sale, while a bill of supply records an exempt sale or one made by a composition dealer. A delivery challan travels with goods that move without a sale, such as dies sent for job work or a transfer inside one registration. The transaction type picks the document.
What each document is for
A tax invoice covers a taxable sale by a registered seller and carries tax columns, the buyer’s GSTIN and place of supply, so the buyer can claim input credit. That credit is the point.
A bill of supply covers exempt goods and anything sold by a composition dealer, so it shows no tax column and the dealer prints a line saying so.
A delivery challan is different. It is not a bill at all, only a movement record that lets goods travel before any sale has happened, as with dies sent to a job worker.
- Tax invoice: taxable sale, buyer can claim credit
- Bill of supply: exempt goods or composition seller, no tax shown
- Delivery challan: goods in motion, no sale on the day
- Credit note and debit note: corrections, separate series
Fields that differ on the page
All three show the seller’s name, address and GSTIN, but the tax invoice adds HSN code, taxable value, CGST, SGST or IGST by line, and total in words.
The bill of supply drops the tax columns, and the challan often drops the price, though it still needs quantity, description, consignee and place of delivery.
A job work challan names the job worker and the process, because without it the principal cannot show that the goods went out for work and not for sale. Dies, moulds and castings go out often.
- Tax invoice: HSN, taxable value, tax by line, place of supply
- Bill of supply: HSN and value, no tax columns
- Delivery challan: quantity, consignee, delivery place, reason for movement
- Job work challan: job worker’s GSTIN and the process requested
Why each document has its own series
Rules expect a consecutive serial number for each document type, so a challan numbered from the invoice series makes the register look as if bills have gone missing. A gap invites questions. The officer will ask.
So keep separate series: one for tax invoices, one for bills of supply, one for challans, and one each for credit notes and debit notes. Prefixes mark branch and year.
Cancelled numbers stay marked. Never reuse one. At year end, the accounts clerk should be able to list every number from one to the last, with its document type and status, straight from the register.
The cases that trip people up
Job work is the common one. Sheet metal leaves for powder coating. No sale occurs. The principal sends it under a job work challan and watches the return date, since goods not back within the allowed period can be treated as a supply.
Stock transfer is the second. Between two godowns under one GSTIN a challan is enough, but between branches with different GSTINs the move counts as a supply, so a tax invoice is needed.
The third is a mixed bill. A pharmacy sells exempt and taxable items on one counter, so either split the bill or use an invoice-cum-bill of supply, as your chartered accountant advises. Fix the choice in the software. Never decide it at the counter.
Letting the software choose the document
The clerk should not pick from memory. The transaction should pick it. A sale order for taxable goods gives a tax invoice, an exempt item line gives a bill of supply, and a job work issue gives a challan.
Rules sit behind that choice: the buyer’s registration status, the seller’s scheme, the item’s tax class and both GSTINs on a transfer. One button opens the right form. The series number fills itself.
Test it with ten recent odd transactions from your own books, such as a goods-on-approval dispatch or a sales return after a rate change. Each one the software would have handled wrongly points to a missing rule, so write the rule down, add it, and run the same ten transactions again.
- Item master carries the tax class and HSN
- Party master carries the GSTIN and registration type
- Transaction type selects the document and series
- Challan stays open until the goods return or are billed
Document picker worksheet
One sheet, one grid. Rows list your usual transactions: counter sale, exempt item, job work out, job work back, branch transfer, goods on approval and sales return. Columns show the document, the series prefix, the mandatory fields and the signer, and a last column records the return date for challans.
Open a blank worksheet to printQuestions owners ask
Can a delivery challan replace an invoice?
No. A challan moves goods when no sale takes place, so a sale needs a tax invoice, and a long trip may also need an e-way bill.
Does a composition dealer issue a tax invoice?
No. A composition dealer issues a bill of supply and cannot charge tax to the buyer, so the buyer gets no input credit on that document.
Can the three documents share one number series?
It is better not to. Each type needs its own consecutive series so gaps are easy to spot and explain during an audit, and a challan never uses a sale’s number.
Who can tell me which document applies to my case?
Your chartered accountant or tax consultant. Software applies the rules you give it, so a new or unclear case such as a mixed supply or a goods-on-approval dispatch needs advice before the rule is added.