Debit note vs credit note under GST: who issues which, and when
Goods came back, the rate was wrong, a discount was agreed later. Which document corrects the invoice, who raises it, and what it does to the tax — with the entries.
A tax invoice, once issued, is not edited. If the value turns out to be wrong, it is corrected by a second document that refers to the first. A CREDIT NOTE brings the value down. A DEBIT NOTE takes it up.
Under GST, the SUPPLIER raises both
This is where trade habit and the law part ways. In the market, a buyer who returns cloth "raises a debit note" on the supplier. In his own books that is a perfectly good document. But the GST adjustment flows from the supplier's credit note, reported in the supplier's return. The buyer's debit note changes nobody's tax.
| What happened | Supplier issues | Effect on tax |
|---|---|---|
| Customer returned goods | Credit note | Supplier's output tax falls; buyer reverses the credit he took |
| Rate charged was too high | Credit note | Same |
| Shortage or damage accepted | Credit note | Same |
| Discount agreed after the sale, linked to the invoice | Credit note | Same |
| Rate charged was too low | Debit note | Supplier's output tax rises; buyer may take the extra credit |
| Extra quantity delivered, not billed | Debit note or a fresh invoice | Tax rises |
What a note must carry
- Its own serial number and date.
- The number and date of the original invoice it corrects.
- Both parties' names and GSTINs.
- The value being changed, and the tax on it at the rate of the original invoice.
The time limit on credit notes
A credit note that reduces tax must be declared in the return no later than 30 November following the end of the financial year of the original supply, or the date the annual return is filed, whichever is earlier. After that, the value can still be reduced commercially — but the tax already paid stays paid. And the reduction holds only if the buyer gives up the corresponding input credit.
In the books
Goods of ₹20,000 returned by a customer, 5% GST, within the state. In the SUPPLIER's books:
| Account | Debit | Credit |
|---|---|---|
| Sales returns | 20,000 | |
| Output CGST | 500 | |
| Output SGST | 500 | |
| Customer | 21,000 |
In the BUYER's books the mirror image: Supplier debited ₹21,000; Purchase returns credited ₹20,000; Input CGST and SGST credited ₹500 each.
Three things that go wrong
- A "financial" credit note with no GST, for a discount that was really linked to the invoice. The value in the books falls; the tax in the return does not.
- A note set against the party's account but not against the bill, so the outstanding list still shows the full bill.
- Notes left out of the turnover working. GSTR-1 nets them in; a working that adds invoices alone will not match it.
Rates, forms and time limits change. Treat any figure in this piece as the rule at the time of writing and confirm the current position before you rely on it.