Purchase Requisition: Meaning, Form, and Tally Workflow

Key Takeaways

A purchase requisition is an internal approval document that authorises a department to initiate a purchase, it is not a commitment to the vendor.
Teams often confuse PRs with POs, a PR is internal, while a PO is external and creates a legal commitment with the vendor.
Validating vendors at the PR stage protects Input Tax Credit, clean GSTIN data and compliance checks prevent GSTR-2B mismatches later.
E-invoice compliance must be screened before issuing a PO, invoices from mandated suppliers without IRN are not valid for ITC.
Tally bill-wise tracking, three-way matching, and consistent PR numbering create full traceability from approval to payment.

Purchase Requisition: The Short Answer

A vendor bill that arrives without a matching approval is not just an embarrassment, it is a direct route to unbudgeted spend and blocked Input Tax Credit (ITC). Every rupee you pay a supplier whose GSTIN is wrong in your records is a rupee of ITC at risk under Section 16 of the CGST Act, 2017. A purchase requisition is the one-page gate that stops this before it starts.

A purchase requisition (PR) is a formal internal request raised by a department to procure goods or services, requiring approval before a purchase order (PO) is issued to any vendor. It sits at the very start of the procure-to-pay (P2P) cycle. Governed by internal procurement policy rather than statute, the PR ensures that every commitment to a vendor is authorised, budgeted, and traceable, so the invoice that eventually arrives can be matched, posted in Tally, and reconciled against GSTR-2B without drama.

A PR gates the spend before it starts, the PO and invoice become clean because vendor validation and budget checks are already done.

What It Is — Internal approval request to initiate a purchase
Who Raises It — Department head, project manager, or any budget owner
When It Is Raised — Before any vendor is contacted or a PO is issued
What It Authorises — Spend from a specific budget line for a defined item or service
What Comes Next — Approved PR → PO issued to vendor → GRN on receipt → Invoice matched and posted
What It Is Not — A purchase order, a vendor commitment, or an invoice

The rule most teams get wrong: a PR is not the same as a PO. Approving a PR only authorises the internal decision to buy. The vendor commitment, and the GST liability, begins with the PO. If your team is raising POs without a prior approved PR, you have no budget control and no audit trail.

What Is A Purchase Requisition And Where Does It Fit In P2P?

A purchase requisition is step zero of the procure-to-pay cycle, the internal checkpoint that must be cleared before a single rupee is committed to any vendor. It answers one question: has someone with the right authority confirmed this purchase is needed and budgeted?

The PR's Place In The P2P Chain

The P2P chain for an Indian SMB running Tally looks like this:

PR raised — Requesting department fills the purchase requisition form with item details, estimated value, and budget code.
PR approved — Finance head or department approver signs off based on threshold matrix.
Vendor selected — Vendor's GSTIN, legal name, and e-invoice compliance status are verified against your vendor master.
PO issued — Tally Purchase Order voucher is created referencing the PR number.
GRN recorded — Goods Receipt Note, Receipt Note in TallyPrime, is posted when goods arrive.
Invoice matched — Supplier invoice is matched to PO and GRN in a three-way match.
Purchase voucher posted — Invoice is entered in Tally with "New Reference," and payment uses "Against Reference" to close it.

Why The PR Specifically Protects ITC

ITC eligibility under Section 16 of the CGST Act, 2017 requires four conditions: possession of a valid tax invoice or debit note, actual receipt of goods or services, payment of tax by the supplier to the government, and filing of a valid GSTR-3B. The PR controls the upstream of this, it forces vendor verification before the PO is raised, so the invoice that eventually arrives already has the right GSTIN, legal name, and e-invoice status in your system.

PR Versus PO Versus Vendor Bill

These three documents are frequently confused but serve entirely different purposes. A PR is internal and carries no legal weight with the vendor. A PO is an external offer to buy, once accepted, it is a contract. A vendor bill, tax invoice, is the supplier's claim for payment and the document on which your ITC rests. The PR gates everything upstream so the PO and invoice are clean from day one.

Frequently Asked Questions About Purchase Requisitions And P2P

Does every purchase need a PR, or can small items bypass it? Most SMBs set a threshold, for example, items under ₹5,000 might use a petty cash route. Above that threshold, a PR is required. The threshold is a company policy decision, not a statutory one. The key is to document the threshold clearly and review it quarterly so inflation does not silently push routine purchases below the radar.

Can a PR be raised verbally and documented later? No, a retrospective PR defeats the purpose. The approval must precede the commitment. If a verbal instruction was given in an emergency, the exception should be logged in writing within 24 hours and countersigned by the approving authority, with the reason for the emergency noted. This creates an audit trail without blocking urgent operations.

Why PRs Protect Cash And ITC — The Business Case

Skipping PRs does not save time, it defers the cost to month-end reconciliation, GSTR-2B mismatches, and duplicate payments that are hard to recover.

The ITC Leakage Scenario

Consider a ₹10 lakh purchase from a vendor whose GSTIN was keyed incorrectly into your system at onboarding. GST at 18% is ₹1.8 lakh. The vendor files GSTR-1 with their correct details. Your invoice does not appear in GSTR-2B because the GSTIN on the bill does not match your registration as the buyer. Per Rule 36(4) of the CGST Rules, 2017, ITC is capped at what is reflected in GSTR-2B. Result: ₹1.8 lakh of ITC is blocked until the supplier corrects the filing, or permanently lost if the supplier is unresponsive.

The E-Invoice Non-Compliance Risk

If your supplier's aggregate turnover exceeds ₹5 crore in any financial year from FY 2017–18 onwards, they are mandated to generate an IRN per the NIC e-Invoice Portal. An invoice issued without an IRN is not a valid tax invoice. Consequences are bilateral: the supplier faces a penalty under Section 122(1)(iii) of the CGST Act of ₹10,000 or 100% of tax due, whichever is higher, and you, the recipient, cannot claim ITC on that invoice. A PR workflow that includes an e-invoice compliance check on the vendor master before the PO is issued eliminates this risk entirely.

Why GSTR-2B Mismatches Happen

Common reasons an invoice does not appear in GSTR-2B, per GSTN guidance, include: the supplier has not filed GSTR-1, the supplier filed GSTR-1 with an incorrect recipient GSTIN, the invoice was reported in a later return period, or a credit note was applied in a subsequent month. The current position is that ITC can be availed only if the invoice is reflected in GSTR-2B. None of these situations are recoverable quickly, chasing a supplier to amend a GSTR-1 filing takes time and goodwill. Pre-screening the vendor at the PR stage removes the root cause.

Frequently Asked Questions About Cash Control And ITC

If a supplier's invoice is not in GSTR-2B, can ITC still be claimed? Under the current position, ITC is generally available only to the extent reflected in GSTR-2B. Rule 36(4) of the CGST Rules, 2017, restricts ITC to invoices appearing in GSTR-2B. If an invoice is missing because the supplier has not filed GSTR-1, the recipient must follow up with the supplier to ensure filing. Until the invoice appears in GSTR-2B, the ITC should not be claimed in GSTR-3B to avoid future notices or reversals.

What is the penalty if a vendor who is required to issue an e-invoice does not? Section 122(1)(iii) of the CGST Act, 2017, stipulates a penalty of ₹10,000 or 100% of the tax due, whichever is higher, for issuing an incorrect invoice. An invoice without an IRN by a mandated supplier qualifies as an incorrect invoice per NIC guidance. The recipient's consequence is equally severe: the invoice is not a valid tax document, so ITC is blocked. Always confirm your vendor's e-invoice status before issuing a PO.

How To Implement A PR Workflow In A Tally-First SMB

A PR workflow does not need new software. Seven steps, a shared folder or Google Sheet for tracking, and the right Tally settings are enough for most ₹1–₹100 crore businesses.

Step 1: Define Approval Thresholds

Set three tiers. For example: up to ₹25,000, department head approves, ₹25,000 to ₹2 lakh, finance head approves, above ₹2 lakh, CFO or founder approves. Capex follows a separate, stricter matrix. Document this in a one-page policy signed by the MD.

Step 2: Assign PR Numbers

Use a sequential format: PR/FY26/001. This number travels through the entire P2P cycle, into the PO, into the Tally Purchase Order narration field, and into the Purchase Voucher narration. TallyPrime's narration field on Purchase Order vouchers can carry the PR number for easy cross-reference when generating outstanding reports.

Step 3: Verify Vendor Before PO Is Raised

Before any PO is issued, confirm three things on the vendor master: legal name matches GST registration exactly, GSTIN is 15 digits and valid, and the vendor's turnover status relative to the ₹5 crore e-invoice threshold. GSTN's taxpayer search on the GST portal confirms name and GSTIN live. This step costs two minutes and protects ₹1.8 lakh on a ₹10 lakh order.

Step 4: Create The PO In TallyPrime

In TallyPrime, record a Purchase Order voucher, Gateway of Tally → Transactions → Inventory Vouchers → Purchase Order. Enter the PR number in the narration. Once goods are received, raise a Receipt Note, GRN, in TallyPrime linked to the PO. This populates item details automatically into the Purchase Voucher when you reference the PO, per TallyPrime Help documentation.

Step 5: Enable Bill-Wise Details In Tally

Company level — Gateway of Tally → F11: Features → Accounting Features → set "Maintain Bill-wise details" to "Yes."
Ledger level — In each Sundry Creditor ledger, set "Maintain balances bill-by-bill" to "Yes."
Reference types — "New Reference" for first-time invoice posting, "Against Reference" when recording payment to settle that bill, "Advance" when payment precedes the invoice, "On Account" only when a payment cannot be matched to any specific bill.

Step 6: Three-Way Match Before Posting

Before posting the Purchase Voucher, confirm: the invoice amount matches the PO, the quantity matches the GRN, and the GSTIN and legal name on the invoice match the vendor master. Any mismatch is a hold, contact the supplier for a corrected document before posting.

Step 7: Month-End Tie-Out

Run the Outstanding Payables report in TallyPrime filtered by bill reference. Any PR number without a corresponding "Against Reference" payment is an open liability. Cross-check open Purchase Orders against pending GRNs. Reconcile this list with GSTR-2B before filing GSTR-3B, every open bill should have a matching GSTR-2B entry or be explained.

Where AiA Fits In This Workflow: Steps 3 and 6, vendor pre-checks and invoice posting, are where most manual errors occur. AiA's AP and bills automation ingests supplier invoices from PDFs, scans, and Excel, extracts GSTIN and legal name fields, flags mismatches against your vendor master, and pushes cleaned entries back to TallyPrime with bill-wise allocation already mapped. For teams processing 100+ invoices a month, this replaces the manual three-way match with an automated exception queue, you see only the mismatches, not every line.

Frequently Asked Questions About Tally PR Workflow

How does the Purchase Order in TallyPrime link to the eventual Purchase Voucher? When recording a Purchase Voucher in TallyPrime, you can select the corresponding Purchase Order reference. TallyPrime auto-populates item details from the PO into the voucher. The bill reference from the PO flows into the Purchase Voucher, enabling tracking of payments against specific orders using "Against Reference" allocation. PO numbers can also be entered in the narration field for cross-referencing in outstanding reports.

What is the difference between "New Reference" and "Against Reference" in TallyPrime bill-wise details? "New Reference" is used when recording a Purchase Voucher for a new invoice, it assigns a unique reference number to that bill. "Against Reference" is used when recording the payment voucher to settle that bill. Using "Against Reference" correctly closes the open liability in the outstanding payables report. "Advance" is used when payment precedes the invoice, and "On Account" is used when a payment cannot be allocated to any specific bill.

What Should Your Purchase Requisition Form Capture?

A purchase requisition form that is too long will not be filled correctly. A form that is too short will not hold up in an audit or a GSTR-2B dispute. The right version has 10–12 fields and takes under five minutes to complete.

Core Fields And Validation Rules

PR Number — Sequential, auto or manual: PR/FY26/001 — Links the PR to PO and Tally narration
Date — DD/MM/YYYY — Establishes approval timeline
Requested By — Name and department — Accountability
Item / Service Description — Must include HSN or SAC code estimate — Ensures correct tax rate at PO stage
Quantity And Unit — Numeric and unit of measure — Prevents GRN mismatch
Estimated Value (₹) — Round to nearest ₹1,000 — Triggers correct approval tier
Required By Date — DD/MM/YYYY — Drives urgency and vendor lead time
Preferred Vendor (If Any) — GSTIN must be pre-validated — Blocks unverified vendors
Budget Code / Cost Centre — Must match Tally cost centre — Enables cost allocation in Tally
Capex / Opex Flag — Tick box — Determines accounting treatment
Approver Name And Signature — Per threshold matrix — Mandatory before PO is raised
Approval Date — DD/MM/YYYY — Audit trail

Vendor Master Fields That Must Be Clean Before PO

Per GSTN guidelines, the following vendor master fields must exactly match the supplier's GST registration to prevent ITC disputes: legal name of the business as per GST registration, GSTIN, 15-digit alphanumeric, principal place of business address, and state code, derived from digits 1–2 of the GSTIN. A spelling error in the legal name or a transposed digit in the GSTIN means the invoice will not reconcile in GSTR-2B. The vendor validation at the PR stage, not the invoice stage, is the right time to catch this.

How PR Fields Flow Into Tally And E-Invoice Matching

The NIC e-invoice schema includes a "Ref" field that some suppliers use to carry the buyer's PO number. When your PR number travels into the PO, and the PO number is shared with the vendor at order time, the vendor can include it in the e-invoice's reference field. This creates a direct link: PR number → PO number → e-invoice reference → Tally narration. Matching becomes a text search, not a manual exercise. Key NIC e-invoice schema fields for your matching workflow are: Supplier GSTIN, Document Number and Date, Buyer GSTIN, Item HSN, Taxable Value, and GST amount fields per the NIC e-Invoice Schema documentation.

Where AiA Fits In This Section: AiA's Excel import for vendor master updates applies template-level validations, it checks GSTIN format, flags name mismatches against GSTN records, and reports row-level errors before any data touches Tally. PR and PO numbers captured during import flow directly into invoice narrations, making "Against Reference" allocation in TallyPrime automatic rather than manual.

Frequently Asked Questions About PR Form Design

Does the PR form need to be a physical document or can it be digital? Either format is acceptable, there is no statutory requirement for a physical PR. A shared Google Sheet, a simple form tool, or an approval workflow in email all work. What matters for an audit is that the approval timestamp precedes the PO date and that the approver's identity is verifiable. Digital logs satisfy this better than wet-ink signatures because the timestamp is system-generated and tamper-evident.

Should the PR form capture the vendor's GSTIN, or is that only needed at the PO stage? Capturing the preferred vendor's GSTIN on the PR form is best practice, not mandatory. Doing it at the PR stage allows the approver to see the vendor's compliance status before authorising the spend, not after the PO is raised and the vendor relationship has begun. This is especially important for vendors near the ₹5 crore e-invoice threshold, where compliance status can change across financial years.

What Breaks In PR Rollouts And How To Fix It Fast

Most PR implementations fail not in the design but in three recurring scenarios: emergencies, advances, and GRN gaps. Each has a clean fix that does not require rewriting your policy.

Emergency Purchases

Trigger: Operations needs a part urgently, the supplier is contacted directly, and the PR is raised retroactively, or not at all.

Fix: Define an "Emergency PR" sub-type in your form. It uses the same template but is flagged for post-facto approval within 24 hours. The approving authority countersigns and notes the reason. The PR number is still assigned sequentially, so the audit trail is intact. This removes the excuse of "no time" without removing the control.

Advance Payments

Trigger: A vendor requires a 30% advance before delivering. The payment is made without a PR or a matching invoice, and the Tally entry is posted "On Account," creating an unallocated credit.

Fix: Raise a PR for the full order value. Note the advance requirement. Use TallyPrime's "Advance" reference type when recording the advance payment voucher. When the final invoice arrives, use "Against Reference" on the advance portion and "New Reference" for the balance. Per CBIC Notification No. 66/2017 – Central Tax dated 15 November 2017, GST is not payable on advances for goods. For services, GST is payable on the advance, and the tax paid adjusts against the final invoice per CBIC FAQs on GST. Tag the reference type correctly in Tally from day one to avoid rework.

Missing GRNs

Trigger: Goods arrive, are used immediately, and no Receipt Note is posted in TallyPrime. The Purchase Voucher is posted directly, breaking the PO–GRN–Invoice three-way match.

Fix: Make GRN posting a warehouse or stores responsibility, not a finance responsibility. Finance should not post a Purchase Voucher unless the GRN number is cited on the invoice. In TallyPrime, the Receipt Note can be linked to the PO so item details flow automatically, the same mechanism that should be used for the Purchase Voucher. A missing GRN number on the invoice is a hard stop in your AP process.

Duplicate PRs

Trigger: Two team members raise PRs for the same item in the same month, common in growing teams without a central PR register.

Fix: Maintain a single PR register, a shared spreadsheet or simple tracking tool, that is checked before a new PR is numbered. The PR number itself is a control, sequential numbering makes gaps and duplicates visible. A monthly review of open PRs against received invoices will surface duplicates before payment.

Capex Misclassified As Opex

Trigger: A laptop is purchased on a PR tagged "office expenses" as opex. It is posted to an expense account in Tally instead of a fixed asset account, distorting both the P&L and the balance sheet.

Fix: The Capex or Opex flag on the PR form is mandatory and must be reviewed by the approver. Any PR above ₹10,000 for a durable item should default to a Capex review. The finance team maps approved Capex PRs to fixed asset ledgers in Tally before the Purchase Voucher is posted.

Frequently Asked Questions About PR Failure Modes

What happens if a payment is recorded "On Account" in Tally instead of "Against Reference"? An "On Account" entry in TallyPrime creates an unallocated payment that remains open in the outstanding payables report without closing the corresponding bill. This inflates your apparent outstanding liabilities and makes reconciliation harder. "On Account" should only be used when a payment genuinely cannot be linked to any specific invoice. If the bill is known, use "Against Reference" to close it cleanly.

How does GST apply to an advance paid to a service vendor before the invoice is raised? For services, GST is payable when an advance is received by the supplier, per CBIC FAQs on GST. The supplier should issue a Receipt Voucher for the advance. When the final service invoice is issued, the tax already paid on the advance is adjusted against the final invoice's tax liability. For goods, per CBIC Notification No. 66/2017 – Central Tax, GST is not payable on advances. Record the advance using TallyPrime's "Advance" reference type so the allocation is traceable when the final invoice arrives.

Frequently Asked Questions

What is the difference between a purchase requisition and a purchase order?

A purchase requisition is an internal document, it never leaves your company. It is a request from a department seeking approval to buy something. A purchase order is an external document sent to the vendor that creates a legal commitment to purchase at a stated price and quantity. The PR comes first and authorises the spend internally. The PO comes second and commits the company externally. Raising a PO without an approved PR means your company has made a vendor commitment without internal budget confirmation, this is the most common source of unbudgeted spend in SMBs.

Can a vendor raise a GST invoice before a PO is issued?

A vendor can legally issue a GST tax invoice at any time after supply, there is no statute requiring a prior PO. However, if you receive an invoice without a corresponding PO in your system, your three-way match fails and posting the bill creates an uncontrolled liability. More importantly, if the vendor's GSTIN or legal name on the invoice does not match your vendor master, your ITC under Section 16 of the CGST Act, 2017, is at risk. Best practice is to issue the PO first, share the PO number with the vendor, and require it to appear on the invoice.

What happens if a mandated supplier issues an invoice without an IRN?

If the supplier's aggregate turnover exceeds ₹5 crore in any preceding financial year from FY 2017–18 onwards, they are mandated to generate an IRN on the NIC e-Invoice Portal. An invoice issued without an IRN is not a valid tax invoice. The recipient cannot claim ITC on this invoice. The supplier faces a penalty under Section 122(1)(iii) of the CGST Act, 2017: ₹10,000 or 100% of tax due, whichever is higher. If you discover this after payment, contact the supplier immediately to cancel and reissue with a valid IRN, or accept that the ITC is permanently blocked.

How do I reconcile open PRs with GSTR-2B at month-end?

Run the Outstanding Payables report in TallyPrime filtered by bill reference. Cross-reference open bills against your GSTR-2B for the month. Any bill posted in Tally that does not appear in GSTR-2B means either the supplier has not filed GSTR-1, filed with an incorrect GSTIN, or reported the invoice in a later period. Do not claim ITC in GSTR-3B for these bills. Follow up with the supplier to correct and refile. ITC can only be availed once the invoice is reflected in GSTR-2B per Rule 36(4) of the CGST Rules, 2017.

Is a purchase requisition legally required under Indian law?

No statute, CGST Act, Companies Act, or Income Tax Act, mandates a purchase requisition as a specific document. However, for companies subject to internal financial control requirements under the Companies Act, 2013, documented procurement authorisation is an expected component of purchase process controls. For GST purposes, having a PR audit trail strengthens your position if ITC is challenged, because it demonstrates that vendor selection and invoice validation were controlled processes rather than ad hoc decisions.

What should I do if a vendor's legal name on the invoice has a minor spelling variation from the GST registration?

Per GSTN guidance, the legal name on the invoice must match the name as per the supplier's GST registration for clean ITC availing. A minor variation, for example, "Pvt" versus "Private," may cause the invoice to be flagged during an audit or GSTR-2B matching. Contact the supplier to issue a corrected invoice with the exact registered name. For significant mismatches, a different trade name entirely versus the registered entity name, the invoice may be considered invalid for ITC purposes, and a fresh correct invoice is required before payment is released.

How do approval thresholds in a PR policy affect ITC and audit defence?

Approval thresholds do not directly affect ITC eligibility under Section 16 of the CGST Act, 2017, ITC is determined by invoice validity and GSTR-2B reflection. However, documented approval thresholds strengthen your audit defence significantly. If a tax officer questions the commercial substance of a purchase, a common line of inquiry in ITC disputes, a signed PR with a named approver, a budget code, and a date establishes that the purchase was planned and authorised. Without this, defending the business purpose of the purchase becomes a matter of oral explanation rather than documentary evidence.

Can the same vendor have two active GSTINs, and how does this affect the PR and vendor master?

Yes, a vendor operating across multiple states must register in each state separately, resulting in multiple GSTINs. Each GSTIN is a distinct taxpayer record. If your vendor supplies from their Maharashtra unit but your vendor master holds their Karnataka GSTIN, the invoice will not match GSTR-2B and ITC will be blocked. At the PR stage, confirm which state entity is supplying the goods or services and ensure the vendor master entry used in the PO corresponds exactly to that state's GSTIN. Maintain separate vendor master records for each GSTIN of the same group.