A Practical Guide to Tax Invoices: How to Handle GST, VAT, and Withholding Tax Without Stress

If you’ve ever stared at an invoice wondering “Wait… is this GST, VAT, or withholding tax?” — you’re in very good company. This question usually shows up at the worst possible moment: the client is waiting, the deadline is close, and Google gives you ten different answers depending on the country, year, and moon phase.

Here’s the good news: tax invoices are not as scary as they sound. Whether you’re figuring out how to write an invoice with withholding tax, choosing the right invoice format with GST, or trying to understand if invoice value includes VAT, you’re always solving the same problem. You’re documenting a transaction clearly enough that your client, your accountant, and the tax office all understand what happened — without follow-up questions.

Invoice vs Tax Invoice: the simple explanation

An invoice is a document that asks your client to pay you.
A tax invoice is an invoice that also officially documents a tax (such as VAT or GST).

Every tax invoice is an invoice.
But not every invoice is a tax invoice.

Whether you need a tax invoice depends on two things:

1. Are you registered for VAT or GST?
2. Does this transaction require you to charge tax?

If the answer to both is yes, you need a tax invoice. If not, a regular invoice is usually enough.

Example of a regular invoice (no tax):

Design services
Total: €1,000
VAT: Not applicable (VAT exemption according to local law)

Example of a tax invoice:

Consulting services
Net amount: €1,000
VAT (20%): €200
Total: €1,200
VAT ID: DE123456789

The difference isn’t the layout — it’s the presence of clearly stated tax and a tax registration number.

Invoice Format With GST: CGST, SGST, IGST Explained

VAT (Value Added Tax) is a consumption tax used across the EU, the UK, and many other countries, where tax is added at each stage of value creation and shown clearly on invoices.
GST (Goods and Services Tax) works in a very similar way but is used in countries like India, Australia, and Canada, often with extra rules based on where the seller and buyer are located.
The key difference isn’t the idea behind the tax, but how invoices are structured and which local rules you must follow.

If you work with GST, the invoice format depends on where your client is located. This is where many mistakes happen.

For domestic transactions, GST is usually split into CGST and SGST.
For interstate or export transactions, IGST applies.

That’s why an export invoice format with IGST looks different from a local bill format with GST.

Example: domestic GST invoice

Service value: ₹10,000
CGST (9%): ₹900
SGST (9%): ₹900
Total invoice value: ₹11,800

Example: export invoice with IGST

Service value: ₹10,000
IGST (0%): ₹0
Export under LUT — tax payable on reverse charge

A common question here is: does invoice value include GST or VAT?

Best practice is to always show:

• taxable value
• GST or VAT amount
• total invoice value (including tax)

This transparency protects both you and your client if questions come up later.

How to Write an Invoice With Withholding Tax

Withholding tax works differently from GST or VAT. Instead of adding tax on top, part of your payment is withheld by the client and paid directly to the tax authority. You still invoice the full amount, but receive less in cash, and the withheld part is credited as tax already paid.

When you write an invoice with withholding tax, clarity is everything. Your invoice should show:

• the gross amount
• the withholding tax rate and amount
• the net amount payable to you

Example:

Service fee: €1,000
Withholding tax (10%): –€100
Amount payable: €900

This makes it clear that your service cost €1,000 — even though you receive €900. In many countries, this format is legally required to avoid double taxation later.

Can You Use a Proforma Invoice to Claim VAT?

Short answer: no.

A proforma invoice is informational only. It’s used to agree on pricing, request advance payment, or support customs documentation — but it has no legal weight for tax recovery. Learn more about proforma invoice.

Typical proforma wording looks like this:

Proforma Invoice
This document is not a tax invoice
For estimation purposes only

So if you’re wondering “can you use a proforma invoice to claim VAT?” — tax authorities are very clear: only a final tax invoice can be used for VAT or GST claims. A proforma invoice should never replace a proper tax invoice once the transaction is completed.

Tax Invoice With TCS Format: When Collection at Source Applies

Tax Collected at Source (TCS) is most commonly used in India, where sellers are required to collect tax on behalf of the government for certain types of transactions. It typically applies to high-value goods (such as vehicles above a threshold), e-commerce marketplace sales, and some cross-border or digital services.

For example, an online platform selling goods may need to collect a small percentage of TCS from the buyer and show it separately on the invoice. The invoice must clearly state the TCS rate and amount, similar to how GST or VAT is displayed. If TCS applies but is missing or incorrect, the invoice may be rejected during tax reporting or audits.

Example:

Product value: ₹50,000
TCS (1%): ₹500
Total payable: ₹50,500

This is especially relevant for marketplaces, digital platforms, or high-value goods. If TCS applies but isn’t shown correctly, the invoice may be rejected during audits or reconciliations.

Keeping It Simple (and Safe)

You don’t need to memorize tax law to issue compliant invoices. What you do need is consistency and the right structure. Using a clear template, understanding when tax applies, and knowing the difference between GST, VAT, withholding tax, and proforma invoices removes most of the anxiety.