What is Debit Note, Credit Note and Revised Invoice in GST?

What is a Credit Note?

A credit note is a statement issued by a seller to a buyer, confirming that a specific amount has been credited to the buyer’s account. For example, if a seller delivers 10,000 units of a product but 1,000 units are found to be defective, the seller will issue a credit note, reducing the payment to cover only 9,000 units.

Credit Note in GST

A credit note must be issued under GST if the following conditions are met:

1. The seller supplies goods and/or services and issues a tax invoice for the supply.
2. The taxable value or tax charged in the invoice exceeds the actual taxable value or tax for that supply.

In such cases, the buyer can return the goods if they are defective or unsatisfactory.

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What is a Debit Note?

A debit note is a document issued to a vendor, notifying them that a specific amount has been debited from their account. For instance, if a buyer finds a product unsatisfactory and requests a refund before or after the transaction, the buyer must issue a debit note to the seller.

Sometimes, the seller may issue a debit note to the buyer. This could happen if the buyer was undercharged or additional goods were supplied under the same invoice.

Debit Note in GST

A debit note must be issued under GST if the following conditions are met:

• Goods and/or services are supplied, and a tax invoice is issued.
• The taxable value or tax charged in the invoice is less than the actual taxable value or tax payable for the supply.
• The seller needs to adjust their tax liability.

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Reasons for Issuing Debit Note or Credit Note

Given below are the reasons why a debit note or a credit note is issued -

• Errors: If the seller undercharges the buyer, a debit note is issued to request payment for the difference. And if the seller overcharges the buyer, a credit note is issued to correct the overpayment.
• Returns of Goods: When the buyer returns goods to the seller, the seller issues a credit note to reflect the reduced amount owed by the buyer.
• Additional Charges: If unforeseen expenses arise after issuing the original invoice (e.g., additional shipping costs), the seller issues a debit note to the buyer for the extra charges.
• Discounts: When the seller grants a discount after issuing the invoice, a credit note is used to document the adjustment.

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Issue of a Debit or a Credit Note

As the Buyer’s obligation to Seller Reduces

After the goods are shipped and the manufacturer issues the invoice, the value of the goods may change due to factors such as returned items or goods received in poor condition. In such cases, the buyer issues a debit note to the seller, reducing the value of the goods.

A debit note outlines the amount deducted from the seller’s account and provides the reason for the deduction.

In the seller’s accounting records, the buyer’s account typically shows a credit balance. When a debit note is issued, this credit balance is reduced, decreasing the seller’s receivable amount. As a result, the buyer pays a lower amount to settle the outstanding balance.

A debit note reduces the buyer’s liability, and in response, the seller issues a credit note to acknowledge the adjustment.

As the Buyer’s obligation to Seller Increases

A debit note is required when the invoice value changes, such as when additional goods are shipped or when previously delivered goods were invoiced incorrectly. In such cases, the seller issues a debit note to the buyer.

In response to the debit note, the buyer issues a credit statement as acknowledgment.

In the seller’s accounting records, the buyer typically has a debit balance. When a debit note is issued, this debit balance increases, indicating that the buyer owes more to the seller to settle the outstanding amount.

As a result, the issuance of a debit note increases the buyer’s liability.

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Difference between Debit Note and Credit Note

The table below will help you understand the difference between debit note and a credit note -

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Format of Debit Note and Credit Note

There is no fixed or prescribed format for a debit note or a credit note. However, it must include the following particulars that are prescribed:

• The word “Debit Note” or “Credit Note” should be clearly mentioned
• Details of Name, Address, and GSTIN of the Supplier should be included
• Nature of the document
• A consecutive serial number not exceeding 16 characters, containing letters, numbers, or special characters for a Financial Year.
• Date of issue of the document.
• Name, address, and GSTIN or UIN of the registered recipient.
• Name and address, along with the address of delivery of the unregistered recipient.
• Serial number and date of the corresponding Tax Invoice.
• Value of Taxable supply of goods or services, rate of tax, and the amount of tax credited or debited to the recipient.
• Signature or Digital signature of the supplier or his or her authorized representative.

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Time to issue Debit Note and Credit Note

Debit Notes or Credit Notes can be issued anytime. There is no prescribed time limit for issuing them. Both the Debit Notes and Credit Notes that are issued should be declared in the GST returns.

Credit Notes and debit notes are to be furnished in return for the month for which such note has been issued before:

• September following the end of the financial year in which such supply was made or
  the date of furnishing of the Annual return

Whichever is earlier, and the liability of the tax should be adjusted in the manner prescribed.

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Supplementary invoices and their uses

Any invoice that is issued by a taxable person when any deficiency is found in a tax invoice already issued by him or her is called a supplementary invoice. This document can be in the form of a debit note or a credit note.

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Revised Invoice under GST

• Under GST, all existing taxable dealers must apply for provisional registration through the migration process provided by the state or central government.
• Taxpayers are required to complete the necessary formalities after the GST rollout. Upon review, they will receive a permanent GST registration certificate.
• During the transition period, taxpayers must update their invoices from the GST implementation date to the issuance date of the GST registration certificate. The updated GST-compliant invoices, including the GST number and HSN code/SAC, must be issued within 30 days of receiving the registration certificate.
• Including the GST number and HSN code/SAC in invoices ensures accurate input tax credit claims and facilitates proper determination of tax liability by seamlessly transferring tax credits from earlier tax regimes.

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How to Revise GST Invoices?

To revise a GST invoice, follow these steps - l

Identify the Need for Revision -

• Review the original invoice for errors or missing information.
• Determine if a revision is necessary to comply with GST regulations.

Prepare the Revised Invoice -

• Use the same series and number as the original invoice, clearly indicating it as a revised version.
• Correct any errors or omissions from the original invoice.

Include Mandatory Details -

• Reference the original invoice number and date.
• Provide the correct GSTIN for both supplier and recipient.
• Ensure accurate taxable value, tax rate, and tax amount.
• Include corrected HSN/SAC codes, if applicable.

Issue the Revised Invoice -

• Distribute the revised invoice within the time frame specified by GST rules.
• Ensure both supplier and recipient retain copies for record-keeping and GST return purposes.

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When should a revised GST invoice be issued?

Under the GST regime, all taxable dealers are required to apply for provisional registration and complete the necessary formalities to obtain a permanent GST registration certificate.

Once the GST registration certificate is issued, the taxpayer must issue revised invoices for all transactions conducted during the interim period between:

1. The date of GST implementation
2. The date of issuance of the GST registration certificate

These revised invoices must be generated and issued within one month from the date the registration certificate is granted.

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Revised Invoice’s Format

The GST law stipulates that revised invoice documentation for services must incorporate the following details:

• The nature of the invoice is indicated as either a “Revised Invoice” or a “Supplementary Invoice.”
• Name, address, and GSTIN of the supplier.
• An alphanumeric serial number specific to the financial year.
• Invoice date.
• Name, address, and GSTIN (if registered) of the recipient.
• Name and address of the delivery place, along with its respective state and code (for unregistered recipients).
• The original invoice serial number and date are for reference.
• Signature or digital signature of the supplier or an authorised person.

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What differentiates between a Supplemental Invoice from a Revised Invoice?

Revised Invoice vs. Supplementary Invoice

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