Sales Invoices & Tax Calculation

The tax invoice is the most important document in the sales cycle. It is the legally mandated document under GST law that records a taxable supply of goods or services. Unlike a proforma invoice (which is an offer) or a sales order (which is a commitment), a tax invoice creates legal and financial consequences — it triggers a GST liability, creates an accounting journal entry, and establishes the customer's obligation to pay.

Every GST-registered business must issue a tax invoice for every taxable supply. The invoice must contain specific information prescribed by the CGST Rules, including the supplier's and recipient's GSTIN, HSN codes, item-wise tax breakup, and the place of supply. Udyamo ERP Lite handles all of this automatically, provided the underlying master data (customer GSTIN, item HSN codes, tax rates) is set up correctly.

This chapter covers invoice creation, GST tax calculation mechanics, the invoice status lifecycle, and the automatic accounting entries that invoices generate.

What You Will Learn

• The legal significance of a tax invoice under GST
• How to create invoices from a sales order or as standalone documents
• GST calculation: CGST + SGST (intra-state) vs. IGST (inter-state)
• The role of HSN codes and tax rates on line items
• Invoice status lifecycle: draft through paid, overdue, and cancelled
• How invoices automatically create journal entries in the accounting module
• How to generate PDF invoices and send them to customers

Prerequisites

• At least one customer record with accurate GSTIN and billing state (Chapter 20)
• Items set up with HSN codes and default tax rates (Chapter 7)
• Understanding of the sales order workflow (Chapter 22, if creating invoices from orders)
• Basic familiarity with the chart of accounts (Chapter 32, helpful but not required)

Invoice vs. Proforma vs. Delivery Note

These three documents serve different purposes and are often confused:

The tax invoice is the only document among these three that has legal standing for GST purposes and creates financial entries in the system.

Creating an Invoice

From a Sales Order

The most common method in a structured sales process:

1. Navigate to Sales > Sales Orders.
2. Open a confirmed sales order.
3. Click Convert to Invoice.
4. The system creates a new invoice pre-filled with:
   • Customer details (name, GSTIN, addresses)
   • Line items with quantities, prices, HSN codes, and tax rates
   • Only the un-invoiced quantities from the sales order
5. Set the Invoice Date (defaults to today).
6. Set the Due Date based on the customer's credit days (e.g., if credit days = 30, the due date is 30 days from the invoice date). The system may auto-calculate this from the customer's payment terms.
7. Review the line items and totals.
8. Click Create Invoice to save.

Standalone Invoice

For direct sales without a preceding sales order:

1. Navigate to Sales > Invoices from the main menu.
2. Click New Invoice.
3. Select the Customer.
4. Set the Invoice Date and Due Date.
5. Add line items:
   • Select the Item.
   • Enter the Quantity and Unit Price.
   • The HSN Code and Tax Rate auto-fill from the item master.
   • Tax Amount and Total are calculated automatically.
6. Add any notes.
7. Click Create Invoice.

GST Tax Calculation

GST calculation on invoices is determined by the place of supply — specifically, whether the transaction is intra-state or inter-state.

Intra-State Supply (CGST + SGST)

When your business and the customer are in the same state, the GST is split equally into two components:

• CGST (Central GST): Half of the total GST rate, payable to the central government.
• SGST (State GST): Half of the total GST rate, payable to the state government.

Example: You are in Maharashtra, selling to a customer in Maharashtra. The item's GST rate is 18%.

Inter-State Supply (IGST)

When your business and the customer are in different states, the entire GST is charged as a single component:

• IGST (Integrated GST): The full GST rate, payable to the central government.

Example: You are in Maharashtra, selling to a customer in Gujarat. The item's GST rate is 18%.

Required: The system determines intra-state vs. inter-state based on the billing state of the customer compared to your organisation's state. Ensure both are correctly configured.

Udyamo ERP Lite stores the tax breakdown at the invoice level:

HSN Codes

Every line item on a tax invoice must carry an HSN (Harmonized System of Nomenclature) code. HSN codes classify goods for GST purposes and are required on invoices based on the following turnover thresholds:

In Udyamo ERP Lite, the HSN code is stored on the item master and auto-fills on invoice line items. Common HSN codes for manufacturing include:

Invoice Fields

Header Fields

Line Item Fields

Summary Fields

Status Lifecycle

Draft ──> Sent ──> Partially Paid ──> Paid
               └──> Overdue
               └──> Cancelled

Warning: An invoice moves to "Overdue" status automatically when the due date passes and the balance due is greater than zero. Monitor overdue invoices regularly to maintain healthy cash flow.

Automatic Journal Entry

When an invoice is created (or moves out of draft status), Udyamo ERP Lite automatically creates a journal entry in the accounting module. This entry follows the double-entry bookkeeping principle:

This means:

• Your receivables increase by the invoice total (the customer owes you this amount).
• Your revenue increases by the pre-tax amount.
• Your GST liability increases by the tax amount.

You do not need to create this journal entry manually. The system handles it automatically, ensuring that your books are always in sync with your invoicing.

Tip: The journal entry reference is stored on the invoice record. You can click through to view the full accounting entry at any time for verification or audit purposes.

Step-by-Step: Creating a Tax Invoice with GST

This example creates an intra-state invoice for machined components.

1. Navigate to Sales > Invoices > New Invoice.
2. Select the customer:
   • Customer: Sai Engineering Works (Maharashtra)
   • Your organisation is also in Maharashtra, so this is an intra-state supply.
3. Set dates:
   • Invoice Date: 15-Jan-2026
   • Due Date: 14-Feb-2026 (30 credit days)
4. Add line items:
   • Item: MS Bracket Type A
   • HSN Code: 7308
   • Quantity: 300
   • Unit Price: 450.00
   • Tax Rate: 18%
   • Tax Amount: 24,300.00 (CGST 12,150 + SGST 12,150)
   • Total: 1,59,300.00
5. Review the summary:
   • Subtotal: 1,35,000.00
   • CGST: 12,150.00
   • SGST: 12,150.00
   • Total: 1,59,300.00
   • Balance Due: 1,59,300.00
6. Click Create Invoice.
7. The system creates a journal entry debiting Accounts Receivable for 1,59,300 and crediting Sales Revenue (1,35,000), CGST Output (12,150), and SGST Output (12,150).

Sending and Downloading Invoices

Once the invoice is saved:

• Click Send Invoice to email the invoice directly to the customer. The status changes to "Sent."
• Click Download PDF to generate a formatted PDF document suitable for printing or manual sharing.

The PDF includes all legally required information: your GSTIN, the customer's GSTIN, invoice number, date, HSN-wise tax breakup, and total in words.

Tip: Send invoices promptly. The sooner the customer receives the invoice, the sooner the payment clock starts. Delays in sending invoices directly translate to delays in receiving payment.

Tips & Best Practices

Tip: Always verify the customer's billing state before creating an invoice. A wrong state means wrong GST components (CGST+SGST vs. IGST), which creates mismatches in GST returns and can result in notices from the tax authorities.

Tip: Use consistent item descriptions and HSN codes across all invoices. This simplifies GST return preparation and makes HSN-wise summary reporting straightforward.

Warning: Do not cancel a sent invoice without a valid reason. Under GST rules, if an invoice has been reported in GSTR-1, cancellation requires issuing a credit note. Simply cancelling the record in the ERP may not be sufficient for GST compliance. Consult your accountant for the correct procedure.

Tip: Review the auto-generated journal entry for every invoice during the first few weeks of using the system. This helps you verify that the accounting integration is working correctly and builds confidence in the automated process.

Quick Reference