The Article explains the meaning of debit note credit note under normal commercial practice Vs under GST Law, definition, Act, Q & A under GST, relevant amendment under GST.

Let’s first discuss Debit note or Credit Note under commercial practice: A debit note is used to give a debit effect on the other party account, while a credit note is used to reflect that a credit has been given to the account of the other party.

In normal commercial practice, any party can issue Debit note or credit note as the case may be, meaning thereby seller (service providers) or purchaser (recipient) anyone issue debit note or credit note.

ABC Ltd sold good worth Rs. 1,000 to XYZ Ltd., on receipt of goods XYZ ltd was not satisfied with quality of the goods and agree to retain said good at Rs. 900.

Now either, ABC Ltd. issue a credit note of Rs. 100 to give credit effect of Rs. 100 in the account of XYZ Ltd. in its books of accounts or XYZ Ltd. can issue a debit note of Rs. 100 to give debit effect in the account of ABC Ltd. in its books of accounts.

A debit note in the books of one party shall be treated as credit note in the books of other party.

Debit note or credit note under GST: GST law has provided a legal recognition to debit note and credit note as a document on which tax incidence can be passed, or excess tax can be credited back. Section 34 of CGST Act, 2017 details out the provisions on debit note and credit note.

Extract of Section 34 of CGST Act, 2017

(1) Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient a credit note containing such particulars as may be prescribed
(2) Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:
Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.
 (3) Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient a debit note containing such particulars as may be prescribed.

(4) Any registered person who issues a debit note in relation to a supply of goods or services or both shall declare the details of such debit note in the return for the month during which such debit note has been issued and the tax liability shall be adjusted in such manner as may be prescribed.

Explanation.–– For the purposes of this Act, the expression “debit note” shall include a supplementary invoice.

Major difference here is, only the supplier of the goods or service or both can issue Debit note or credit note, not the recipient of the same under GST Law.

While in commercial practice both the party can issue debit note or credit note.

Q & A under GST:

1. When can a credit note be issued?

> When excess price or tax has been charged on Tax Invoice,

> When goods are returned by the recipient, or

> When Goods or Services or both supplied are found to be deficient.

2. Who Can issue Credit note?

> Only Supplier of such goods, services or both.

3. Time limit of Issue of Credit note?

> Month of September of following the end of the current financial year in which such supply was made; or

> Date of furnishing of the relevant annual return

Whichever is earlier.

4. When can a Debit note be issued?

> When subsequent to the issue of tax invoice the supplier of goods, or service or both comes to know that taxable value or tax charged in that tax invoice is less than the taxable value or tax payable with respect of such supply.

5. Who Can issue Debit note?

> Only Supplier of such goods or services or both.

6. Time limit of Issue of Debit note?

> There is no time limit for issuance of debit note.

Relevant amendment under GST Law:

CGST Amendment Act, 2018 (effective from 1st February 2019) – Supplier would not be required to issue invoice wise individual debit note or credit note, but can be able to issue a single debit note or credit note for supplies made in financial year.

Earlier debit note and credit note had to be issued by the supplier for an individual tax invoice. Therefore, if a supplier required to issue debit note or credit note against 5 invoices, supplier had to issue 5 separate debit note or credit note in respect of each individual invoice as the case may be.

Some Pointers:

> Accounting effect is same for debit note or credit note issued under GST or under commercial practice.

> No relevance for the payment of supply made or not.

> For GST tax impact, only supplier of such goods or services or both can issue debit or credit note as the case may be.

> Important and legal document under GST as treated at par with Tax Invoice.

Author Bio

Qualification: CA in Practice
Company: Khandelwal Jain & Co.
Location: New Delhi, Delhi, India
Member Since: 30 Nov 2022 | Total Posts: 4
Naveen, about 37 years, is a Chartered Accountant, Company Secretary and GST certified from VG Learning – with more than 14 years of experience in Assurance, Taxation, Strategy Consultancy, advisory, Process Transformation, Secretarial compliances, setting-up of Operations, Stakeholders’ Relatio View Full Profile

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9 Comments

  1. Bindu jashwani says:

    Sir what is the entry in the SAP for customer to issue DEBIT note against Tax invoice is Booked short in particular invoice .As Invoice entry can not be changed or again posted.

    1. Naveen Jain says:

      Hi,
      1. You may reverse the impact of wrong entry in SAP by passing a separate compensatory entry and then fresh entry with correct tax invoice; or

      2. Debit note entry in SAP as same as Tax Invoice entry.

  2. PRITHVIRAJ says:

    Dear Sir,

    Want to know about that when supplier issue a credit or debit note as a “discount” that time what Hsn should be use for that credit/debit note.

    Or when supplier issue credit note for give “discount “for achive annual target. then what process will be used.

    1. Naveen Jain says:

      Hi Prithviraj,
      1. Ideally credit note to be issued by supplier for discount…You must first check whether it is commercial credit note or GST credit note…
      GST Credit note will have same HSN as in Original Tax Invoice.

      2. For Annual target achieve – Credit note not allowed under GST. There must be tax invoice from recipient for Incentive value under GST.

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