Debit Note and Credit Note

Find out when and how to issue GST compliant debit notes and credit notes as a supplier of goods or services.

All suppliers are used to creating invoices in GST quite often. But there are situations when you have already issued an invoice, yet your client is not happy there is a discordance in your invoice. In some cases, the client returns some goods and you will have a negative impact on your accounting balance so you will have to issue a credit note. In other cases, a client receives goods in excess so you need to issue a debit note. Let’s explore what is a credit note and what is a debit note and the specific details on when to issue one or the other.

What is a credit note?

As mentioned, when there are issues with the goods or services supplied to a client and they return goods, or there is a discordance in the invoice, the supplier has to issue to the recipient a credit note using a gst compliant billing software.

When to issue a credit note?

A credit note should be issued in of these cases:

  • When some are all goods supplied have been returned by the client.

  • When services or goods provided to your client have been deficient.

  • When the quantity received by the client is less than the one that appears on the issued tax invoice.

  • When the supplier has added a higher tax rate that the actual amount of tax that needs to be paid for the goods or services provided to the client.

  • When the supplier has created an invoice with a value greater than the actual value of the goods or services provided.

The credit note needs to be declared in the GSTR report corresponding to the correct month.

What is the meaning of debit note?

An invoice is raised on every supply of goods or services. When the supply of such goods or services is different than the contents of the invoice due to certain conditions, or extra goods have been delivered to the recipient, then the seller needs to issue a debit note. This debit note will reflect the upward revision of prices in an already issued invoice and will serve to the recipient of goods / services of any future liability that they have to pay.

When to issue a debit note?

A debit note can be issued in any of these cases:

  • The original tax invoice has already been issued and the taxable value on the invoice is less than actual taxable value.

  • The original tax invoice has been issued and the tax charged in the invoice is less than the actual tax that should be paid.

What is the credit note / debit note format?

Based on the GST rules and guidelines, a credit / debit note should contain:

  • Name, address and GSTIN of supplier

  • Name: credit note or debit note

  • A unique serial number for the current financial year

  • Date of issue

  • Name, address, GSTIN (or UIN in unregistered) of recipient

  • Serial number and date of the corresponding tax invoice (or bill of supply)

  • The taxable amount of goods or services, the rate and amount of tax that is credited or debited to the recipient

  • Signature or digital signature of the supplier, or of an authorized representative

This is how a credit note made with Sleek Bill looks like:

Credit Note Format

This is how a debit note made with Sleek Bill looks like:

Debit Note Format

GST Explained

GST, short for Goods and Services tax, is a new tax that will be imposed on the sale and purchase of goods and services in India. GST is meant to replace all taxes in India with a single unified tax applied to value addition instead of the total value of the product at each stage in the supply chain.

This method provides credit for the input tax paid on the purchase of goods and services, which can be offset with the tax to be paid on the supply of goods and services. As a result, this reduces the overall manufacturing cost, with the end customer paying less.

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With certain current taxes remaining, the following goods and services will be fully or partially exempted from the GST

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Free movement of goods: Business owners will be able to sell more in other states without having to worry about interstate transaction costs. With GST, the entry tax will be eliminated, which will save time and money spent.

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Currently, there are many indirect taxes that both the state and central governments are collecting on every purchase and sale.

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The GST will follow a similar model with the one before it

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GST will have a 4-tier tax structure

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One of the main reasons for GST being introduced in India is the tax burden that falls both on companies and consumers. With the current tax system, there are multiple taxes added at each stage of the supply chain, without taking credit for taxes paid at previous stages. As a result, the end cost of the product does not clearly show the actual cost of the product and how much tax was applied. This cascading structure is too complex and inefficient.

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For inter-state transactions, the Centre will levy Integrated GST (IGST), which is equal to the average of the CGST and SGST rates. After applying IGST, CGST and SGST credits received from purchases, the seller will then pay the remaining IGST on the added value.

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Businesses with turnover revenue of 20 lakhs and above will have to register and file for GST returns, with a threshold of 10 lakhs for businesses in the north east and hill states.

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A combination of CGST and SGST will be applied to the import of goods and services that come to India. Tax benefits and credits will be given to the state where the imported goods and services are consumed.

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