The standardization and matching of invoices under GST in India help improve tax enforcement and limit black money circulation. Under GST, all B2B invoices must be submitted to the GST general repository during the GST return filing process. The machine auto-populates the data to the buyer or receiver side during the filing of the return of inward supplies or GSTR-2 based on the invoice information filed.

As a result, it excludes the possibility of foul play in B2B invoices. In certain circumstances, however, companies will be required to make genuine modifications to an issued invoice. In such cases, the supplier can issue a debit or credit note in order to revise an invoice. 

Difference Between Credit and Debit Note

Simply put, the distinction between a credit note and a debit note is that credit notes report money owed to a customer due to a downward revision of an invoice, while debit notes record money owed to you due to an upward revision in an invoice. If there is a transaction refund, a debit note is issued to reduce receivables, and a credit note is issued to reduce payables.

Debit Note and Credit Note

Credit Note Meaning

A credit note is a statement that is typically sent by a seller to a buyer reminding the buyer that credit has been granted in the buyer’s account. For example, if a seller sells 10,000 units of a product and the buyer discovers 1000 units are faulty, the seller may send a credit note to the buyer, requiring payment for just 9000 units.

Under Credit Note in GST, the concerned person must issue a credit note if the following conditions are met:

  • Making a supply of products and/or services to the appropriate individual Issuing a tax invoice for the supply produced
  • The taxable value or tax paid in the tax invoice is greater than the taxable value or tax bill for such supply. Often, the recipient can return the supplied goods if they are defective or unsatisfactory.

Debit Note Meaning 

A debit notice is a letter that is submitted to the vendor telling them that a debit has been made in their account. If the buyer considers the product unsatisfactory and wishes to refund the payment to the seller before or after the auction, the customer must produce the debit notes. It also represents a debit note sent from the seller to the buyer, reminding the buyer of the debit made to his or her account. In other cases, the vendor could give the debit note to the buyer if the seller undercharged the buyer or the additional goods supplied on the same invoice.

Under Debit Note in GST, the concerned person must issue a debit note if the following conditions are met:

  • Making a supply of products and/or services to the appropriate individual Issuing a tax invoice for the supply produced
  • The tax invoice’s taxable value and/or tax paid is less than the supply’s taxable value or tax payable.
  • If the person in question has to change his or her tax responsibility.

Issue of Debit or Credit Note

(1) As the buyer’s obligation to the seller reduces

After the goods are shipped and the invoice is released by the manufacturer, the value of the goods can change. That may be attributed to a refund of merchandise or poor condition of goods shipped. A debit note given by the purchaser to the seller reduces the valuation of the items. The debit note specifies the amount of money deducted from the seller’s account as well as the reason for the deduction.

Invest in elss funds

The seller’s books of account would show a credit balance in the purchaser’s. When a debit note is released, the seller’s credit balance decreases, lowering the seller’s balance. To cover his debt, the buyer must pay a lower price to the seller. A debit note limits a buyer’s obligation. As an answer or acknowledgment to the debit note, the seller releases a credit note.

(2) As the buyer’s obligation to the seller increases

A debit note is needed where the value of the invoice changes due to additional goods being shipped or where the goods already delivered have been paid at an inappropriate value. The debit note, in this case, is given by the seller to the buyer. As an acknowledgment of the issuance of the debit card, the buyer issues a credit statement.

The customer would have a debit balance in the seller’s books of account. When a debit notice is given, the buyer’s account’s debit balance rises. It means that the buyer must pay more money to the seller in order to cover his debt. As a result, a credit note expands the buyer’s exposure.

Debit and Credit Note – FAQs

Q1. What is a credit note?

A receipt issued by a store to a buyer that has returned items that can be used to cover potential sales

Q2. Is there a time limit for issuing a credit or debit note?

There is no time limit for the issuing of a debit or credit note. It may be released on an as-needed basis.

Q3. What is the relationship between a debit note and a credit note in terms of GST?

When a credit note or debit note is released, it must be recorded on the GST returns in order for the tax obligation to be adjusted.

Q4. Is it necessary for the registered person who issues the debit or credit note to report it in his or her return?

Yes, the specifics of the credit or debit note must be declared in the supplier’s return for the month in which they were given.

Q5. What is a Debit Note?

In the case of GST, a debit note is a notice issued by the retailer in the following circumstances:

  • Increase in Taxable Value – Where a seller has to raise the taxable value of a supply, he or she must send a debit notice to the recipient.
  • Raise in GST paid in invoice – If a seller has to increase the cost or amount of GST charged in an invoice, he or she must send a debit notice to the receiver.