diff --git a/erpnext/stock/doctype/purchase_receipt/purchase_receipt.py b/erpnext/stock/doctype/purchase_receipt/purchase_receipt.py
index b6d87b7525c0..01f6d95e88d9 100644
--- a/erpnext/stock/doctype/purchase_receipt/purchase_receipt.py
+++ b/erpnext/stock/doctype/purchase_receipt/purchase_receipt.py
@@ -1195,6 +1195,10 @@ def update_billing_percentage(pr_doc, update_modified=True, adjust_incoming_rate
 		if pr_doc.get("is_return") and not total_amount and total_billed_amount:
 			total_amount = total_billed_amount
 
+		amount = item.amount
+		if frappe.db.get_single_value("Buying Settings", "bill_for_rejected_quantity_in_purchase_invoice"):
+			amount += flt(item.rejected_qty * item.rate, item.precision("amount"))
+
 		if adjust_incoming_rate:
 			adjusted_amt = 0.0
 
@@ -1209,8 +1213,8 @@ def update_billing_percentage(pr_doc, update_modified=True, adjust_incoming_rate
 
 			adjusted_amt = flt(adjusted_amt * flt(pr_doc.conversion_rate), item.precision("amount"))
 			item.db_set("amount_difference_with_purchase_invoice", adjusted_amt, update_modified=False)
-		elif item.billed_amt > item.amount:
-			per_over_billed = (flt(item.billed_amt / item.amount, 2) * 100) - 100
+		elif item.billed_amt > amount:
+			per_over_billed = (flt(item.billed_amt / amount, 2) * 100) - 100
 			if per_over_billed > over_billing_allowance:
 				frappe.throw(
 					_("Over Billing Allowance exceeded for Purchase Receipt Item {0} ({1}) by {2}%").format(