There comes a time when humans err in making an entry or a transaction. These cases often lead to anomalies and a further reconciliation is required between the interacting parties to make correct, such anomalies. This can happen due to a machine malfunction as well. Such an erroneous situation leads to the creation of what we call as Debit Notes or Credit Notes, wherever applicable.
Whenever there are value related errors, these documents come into play. Whether it is an upward revision or a downward revision in prices, they are always catered with the help of debit or credit notes. It is not just in India that these documents are used, but are used across the globe in generally accepted accounting parlance.
In this article, we’ll explain what are debit notes and credit notes in the context of GST. Find out, in which situations you should create these vouchers.
What are Debit Notes?
An invoice is raised whenever there is a purchase or sale transaction with a consideration. When such consideration falls short due to certain anomalies, or extra goods being delivered to the purchaser, then the seller shall issue a debit note in that case. Such a debit note will take care of the upward revision of prices in an already issued invoice and will intimate the purchaser of the future liability that he has to pay.
Debit notes are raised in cases where there is a tax invoice issued, but the taxable value of the goods therein changes after such issuance. Similarly, there can be a tax invoice issued but the amount of tax changes after such issuance. In both these cases, a seller has to intimate the purchaser about such change.
There is no specified format to issue a debit note, but it can be issued as a letter or a formal document. It is mostly a document specifying future liability and having commercial implications. They increase the credit period of a transaction, but are affected after shipping of goods takes place.
There can be a situation where a purchaser is returning the goods on account of some quality issues, or shortage of quantities, etc. In such cases also, a debit note is raised to account for the difference. The physical movement of goods is taking place without any payments actually being made.
Debit notes are also helpful in identifying through the books of accounts, any movement of stocks between the transacting parties. These notes do not have to be paid instantaneously but have to be settled at a later date.
Debit Notes Under GST
GST takes care of all the changes made in a transaction. It is obvious to have a free flow of credits to the last mile in a GST environment. Hence, dealers and assessees have to follow a tough regime of uploading and updating every single transaction that they enter into.
Since debit notes are a major change to an invoice, they have to be reported separately in the GST returns. Debit notes are explained under section 2(38) of the GST Law.
The word debit note also includes supplementary invoice, it is issued when the-
- Taxable value present in the invoice is less than the actual taxable amount or
- Tax charged in the invoice is less than the actual tax payable
Value of invoice increases due to extra goods/services are delivered or incorrect amount( taxable value/tax) is entered in the invoice. In this case, the supplier will issue debit note. As in the books of the supplier, customer account has the debit balance and on accounting of debit note, customer account balance be will increase. The customer gives credit note on receipt on the debit note to the supplier. The credit note will increase the liability in the books of the customer, as he has pay an extra amount to settle the liability.
The content of Debit Note
The following things are to be maintained in the debit note, for proper update and reporting. Although there is no predefined format for the same, necessary care has to be taken to mention these important details in the debit notes.
Rule 53 states that the debit note shall contain the following particulars:
1. The word “Debit Note”, to be indicated prominently
2. Supplier’s name, address, and GSTIN
3. Nature of the document
4. The consecutive serial number which is a unique number for every financial year
5. Date of issue of the document
6. Name, address and GSTIN or UIN, if registered, of the recipient
7. Name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is unregistered
8. Serial number and date of the corresponding tax invoice or, as the case may be, bill of supply
9. Value of taxable supply of goods or services, the rate of tax and the amount of the tax credited or debited to the recipient and
10. Signature or digital signature of the supplier or his authorized representative
The details of debit notes have to be declared in the month following the month on which such debit note has been raised. Debit notes can be issued anytime without any time limit.
What are Credit Notes?
Similar to the debit notes, credit notes are issued when there is a downward revision in prices of goods or services supplied. It can be compared to a negative invoice that has the ability to nullify the effects of an invoice. It offers a reduction in the value of the invoice and thus, reduces the liability of the purchaser. It is often inflicted with a return of goods to the supplier. It always has a negative impact on the accounting balance in the books of the seller.
Sometimes, the purchaser is unhappy with the quality of product shipped to him. In that case, he shall return the goods to the supplier, and in return, the supplier issues the purchaser, a credit note to the extent of the value of the goods being returned. There is no predefined format in which the credit note has to be issued; rather it is an intimation to the purchaser about such credit being offered.
Credit Notes Under GST
GST takes care of credit notes as well, just like debit notes. Credit notes have to be issued by a taxable person, where there is a shortage of products supplied and for which there is no payment to be made by the purchaser. Since it has a commercial impact, the same has to be informed or declared in GST returns in the month to which it prevails.
The credit note has to be issued based on an original invoice already issued. The original invoice will get reduced to the extent of such credit notes. In some cases, the original invoice value can become zero. Credit notes are defined in section 2(37) of the GST Law.
Credit notes can be issued in the following cases:
- Taxable value present in the invoice is more than the actual taxable amount or
- Tax charged in the invoice is more than actual tax payable
- Recipient returns the goods to the supplier(sales return)
- Goods are found deficient or not as per satisfaction of the buyer
In the above situation, the liability to pay the amount by recipient reduces and hence debit note is issued by them and as an acknowledgment to debit note, credit note is issued by the supplier. As in the books of the recipient, supplier account has a credit balance and by issuing the debit note credit balance will be reduced. In other words, we can also say that recipient is reducing the liability.
Credit notes must also mention the details as noted above in case of debit notes. The particulars are the same in this case as well. Such credit notes must be mentioned in the returns of the following month about which the credit note has been raised. Unlike debit notes where there is no time limit for issuance, credit notes have to be declared in earlier of the following dates:
- Annual return filing date or,
- By the 30th of September, following the year to which credit notes relate toLet us understand the above time limits with some examples –
Situation 1 Situation 2 Year of supply 2017 2017 Date of filing annual return(assumed) 30/11/2018 15/9/2018 30th of September of the following(next) year 30/09/2018 30/09/2018 Earlier of the following dates 30/09/2018 15/9/2018
Where the input tax credit and interest on such invoice is already passed on to other registered person, then such credit note shall have no effect on reduction of output tax liability.
The Content of a Credit Note:
Rule 53 states that the credit note shall contain the following particulars:
1. The word “Credit Note”, to be indicated prominently
2. Supplier’s name, address, and GSTIN
3. Nature of the document
4. The consecutive serial number which is a unique number for every financial year
5. Date of issue of the document
6. Name, address and GSTIN or UIN, if registered, of the recipient
7. Name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is unregistered
8. Serial number and date of the corresponding tax invoice or, as the case may be, bill of supply
9. Value of taxable supply of goods or services, the rate of tax and the amount of the tax credited or debited to the recipient and
10. Signature or digital signature of the supplier or his authorized representative
3 Important points
- The supplier shall mention the details of debit or credit note in from GSTR-1.On filing the details it will get auto-populated in form GSTR-2A for the recipient. The recipient can either modify or accept or reject these details and file form GSTR-2.
- Debit Note/Credit Note Must Contain Invoice Number
1. The debit note/credit note must contain the invoice number of the original supplies made.
2. The details of the debit note/credit to be declared in form GSTR-1 shall be given along with details of original invoice number, date and GSTIN. - The time limit is only for issuing credit note and not debit note.
How to create Credit Note or Debit Note
You can easily create credit note in ProfitBooks from an invoice. Reference of that invoice will be mentioned on the credit note. Similarly, a debit note can be created from a purchase entry.
ProfitBooks is GST compliant accounting software and takes care of the mandatory fields. These transactions will be available under respective GST returns automatically.
Apart from this, you can also create GST invoices from ProfitBooks and comply with GST laws better.
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Also Read
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Please suggest that what GST Rate should be levied in debit note if at the time of purchase GST Rate was 28% and on the same goods now GST Rate is 18%.
If a buyer is not issued debit note for rejected goods then what could do a supplier?? can he rise a credit note ? and if yes how to show it in gstr?
If debit note is raised against various invoices then how to depict the details of such invoice in gst return?