Credit Note and Debit Note in the GST regime

Implementing GST could bring many positive effects on the Indian economy boosting the revenue and improving the number of tax payers in India. There are many terminologies and information that must be understood by all the practitioners. In this article, we will make an attempt to understand two important concepts of GST compliance – Credit & Debit note.

To begin with, there are two types of Credit & Debit notes:

  • Sales Credit & Sales Debit note,
  • Purchase Credit & Purchase Debit note.

    Though they differ as per the transactions and formats, the filing procedure is same for all the return filings.

    What exactly is a Credit Note?

    It is a receipt given by a shop to a customer who has returned goods, which can be offset against future purchases. In day to day business, shopkeepers keep issuing these credit notes for various reasons and purposes:

    • When an Invoice is overstated, say for example when the shopkeeper charged more than what the MRP or the actual value, then the shopkeeper has to initiate a refund for the overcharged price.
    • When incorrect discount is applied on the products and required to be adjusted as per the demand from the customer, the shopkeeper need to raise the Credit note for the specific product.
    • Warranty claim or refund within the guarantee period also requires raising a Credit note,
    • When the product doesn’t satisfy the product description or product specifications even then the shopkeeper need to raise the Credit note to balance the customer satisfaction.

      What exactly is a Debit Note?

      A debit note is issued when the raised invoice falls short due to certain anomalies or when the extra goods are delivered to the purchaser leaving certain percentage loss to the shopkeeper. Then the shopkeeper is eligible to raise a Debit note which serves as the compensation part between the customer and the shopkeeper. Let’s look at different situations when a shopkeeper can raise a Debit note:

      • When the shopkeeper need to do upward revision of prices in an already issued invoice,
      • After a tax invoice is raised but there is a change in tax issuance by the central authority
      • If the customer has received excess goods than what that has been declared by the shopkeeper in the invoice, other comparable reasons also are considered to issue the Debit note.

        How to prepare a Credit & a Debit Note?

        The user is allowed to use any format that she/he wishes to use for their business as there are no specific restrictions on the format. However, there are a set of parameters that has to be mentioned on the credit and the debit note that are common for raising both Credit Note and Debit Note.
        The following are mandatory:

        1. The word “Revised Invoice”, wherever applicable, indicated prominently,
        2. Name, address and GSTIN of the supplier,
        3. Nature of the document,
        4. A consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters -hyphen or dash and slash symbolized as “-” and “/” respectively, and any combination thereof, unique for a 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 un-registered,
        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, rate of tax and the amount of the tax credited or, as the case may be, debited to the recipient,
        10. The signature or the digital signature of the supplier or his authorized representative on the issued Credit note,

        Is GST applicable even on Credited & Debited notes?

        Yes, you are supposed to pay additional taxes on the raised Credited & Debited notes. The issuance of a Credit & Debit note is considered identical to the issuing of a Tax Invoice. As per the records there is a validity period or an expiry period of around 3 years from the date of issue. The business keepers and the customers need to keep the records safe so that it could be used whenever they are required to do so.
        Obviously, the Credit & Debit note plays an important part in invoicing as things always doesn’t go under control. This acts as a helpful measure to compensate the transactional imbalances that occur while raising the invoices.

        by Krishna Sriteja. D

        GST Content Specialist | Tax Technology Enthusiast
        You can reach him on dksriteja@udyogsoftware.com


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