Debit Note vs Credit Note Under GST: When to Issue Each, With Examples
Invoices do not always get it right the first time. A price changes after the sale, a customer returns damaged goods, or you discover you undercharged. GST does not let you edit an invoice you have already reported. Instead, you correct it with a credit note or a debit note.
Both are covered by Section 34 of the CGST Act. This guide explains which one to use, what each must contain, the time limits, and how they affect your return.
The one-line difference
- Credit note: reduces the value or tax on an earlier invoice. The supplier issues it when the original invoice charged too much.
- Debit note: increases the value or tax on an earlier invoice. The supplier issues it when the original invoice charged too little.
Under GST, both are issued by the supplier. This is a common point of confusion. In everyday commerce, a buyer sometimes sends a "debit note" to the supplier when returning goods. That document is useful for the buyer's own books, but it is not the GST document. For GST purposes, the supplier issues the credit note for a return.
When to issue a credit note
Section 34(1) allows a credit note when:
- The taxable value or tax charged in the invoice is more than what was actually payable.
- The goods supplied are returned by the recipient.
- The goods or services supplied are found to be deficient.
Example: You invoice 1,00,000 + 18% GST for 100 chairs. The customer returns 10 chairs. You issue a credit note for 10,000 + 1,800 GST, linked to the original invoice.
Example: You agreed a 5% discount but forgot to apply it. A credit note for the discount and the tax on it fixes the error.
Time limit for credit notes
A credit note must be declared in your return no later than 30 November following the end of the financial year in which the original supply was made, or the date of filing the annual return, whichever is earlier. After that, you can still issue a commercial credit note, but you cannot reduce your GST liability with it.
The buyer must also reverse the input tax credit it had claimed on the reduced amount. Your reduction in output tax is not allowed if the buyer has not reversed the credit, so communicate with them.
When to issue a debit note
Section 34(3) allows a debit note when:
- The taxable value in the invoice is less than the value actually payable, or
- The tax charged in the invoice is less than the tax actually payable.
Example: You invoiced steel at 60 per kg, but your contract has a price escalation clause and the agreed price for that month is 63. You issue a debit note for 3 per kg plus GST.
Example: You charged 12% GST on an item that attracts 18%. A debit note for the 6% difference corrects the tax.
Time limit for debit notes
There is no statutory last date to issue a debit note. But you must pay the extra tax in the return for the month in which you issue it. For the buyer, the deadline to claim input tax credit on a debit note is linked to the date of the debit note, not the original invoice date.
What both documents must contain
Under Rule 53(1A), a credit or debit note must include:
- The nature of the document: "Credit Note" or "Debit Note".
- Name, address and GSTIN of the supplier.
- A consecutive serial number of not more than 16 characters, unique for the financial year.
- Date of issue.
- Name, address and GSTIN or UIN of the recipient, if registered.
- Name and address of the recipient, with delivery address, state name and state code, if unregistered.
- Serial number and date of the corresponding tax invoice, or of the bill of supply.
- Value of goods or services, rate of tax, and the amount of tax credited or debited.
- Signature or digital signature of the supplier or an authorised representative.
Since 2019, a single credit or debit note can refer to more than one invoice. This is handy for a volume discount that covers several invoices in a quarter.
Side by side
| Credit note | Debit note | |
|---|---|---|
| Effect on invoice | Reduces value or tax | Increases value or tax |
| Issued by | Supplier | Supplier |
| Typical reasons | Returns, post-sale discount, overcharge, deficient supply | Price escalation, undercharge, short-billed tax |
| Effect on supplier's GST | Reduces output tax (subject to time limit) | Increases output tax in the month of issue |
| Effect on buyer's ITC | Buyer reverses credit | Buyer can claim additional credit |
| Return reporting | GSTR-1 (credit/debit note tables) and GSTR-3B | GSTR-1 and GSTR-3B |
Discounts: a frequent trap
A discount given after the sale can reduce GST through a credit note only if it was agreed before or at the time of the supply, and can be linked to specific invoices. A discount offered later, for example a goodwill gesture, can still be given with a commercial credit note, but it does not reduce the GST you already paid. Keep the agreement that sets out the discount terms.
E-invoicing and credit/debit notes
If you are covered by e-invoicing, your B2B credit notes and debit notes must also be reported to the Invoice Registration Portal and carry an IRN, just like your invoices.
Create one in minutes
OwnInvoice has free generators for both documents. The credit note generator and the debit note generator let you reference the original invoice, add the lines being adjusted, and download a clean PDF. If the original invoice was made in the Invoice Studio, you can convert it straight into a credit or debit note so the details carry over.
Note: This is general information on GST rules as we understand them. Time limits and reporting tables are amended from time to time; check the current position with your tax adviser.