There may be modifications after the issuing of the original invoice, such as modifications to value, modifications to tax rates or amounts, or modifications of any kind. This is an example of how things normally work; a "Debit/Credit Note" is sent to show the changes made to the account. Lets Understand what is debit note and credit note?

What is Debit Note and Credit Note?

A document that reflects an increase or decrease in the original invoice's amount is called a debit or credit note.

The supplier issues a debit note if the invoice amount needs to be increased from the amount on the original invoice. The account to which the debit note is issued gets a debit.

The supplier issues a credit note if the invoice amount needs to be decreased from the amount on the original invoice. The account to which the credit note is issued gets a credit.

For instance, Mr. Seller sold items to Mr. Buyer for Rs.15000, but the invoice was mistakenly issued for only Rs.10000, and this was discovered two days later. In this instance, Mr. Seller gives Mr. Buyer a debit note for Rs.5000.

For instance, Mr. Seller accidentally sent Mr. Buyer an invoice for Rs.10000 even though he had sold him products for Rs.8000. In this instance, Mr. Seller gives Mr. Buyer a credit note for Rs.2000 to cover the discrepancy in amount.

What is Debit Note and Credit Note in GST

Debit note in GST

Under section 2(38) of the CGST Act, 2017, "Debit note" is defined as "Means a document issued by the registered person under section 34(3) of the act." Section 34(3) of the act says that where the original invoice's taxable value or tax amount is less than the actual taxable value or tax amount for the supply made, in such cases a debit note must be given. The tax obligation is increased when the supplier issues a debit note. To be eligible for the input tax credit, you must have this paperwork. Supplementary invoices are equally treated as debit notes as per this section.

Let's say that Mr. Seller has sent Mr. Buyer a tax invoice. Instead of declaring the taxable value to be Rs.100000, Mr. Seller made a mistake and declared it to be Rs.70000. Mr. Seller will in this instance issue a debit note for Rs.30000 and charge the relevant tax on it. At the applicable tax rate, GST burden will also rise with an enhanced value of Rs.30000.

Reasons why a debit note is issued

The following are some cases where the value of a tax invoice increases and the supplier must issue a debit note to reflect the increase:

• When a supplier incorrectly issues a tax invoice with a lower taxable value, despite the fact that the actual value of the products or services is higher.
• When the supplier incorrectly issued a tax invoice mentioning a lower tax rate, while the actual tax rate on the products or services is higher.
• The amount declared by the supplier in the tax invoice is lower than the amount received by the recipient.

Time Limit to issue a Debit Note

Section 34(4) of the act specifies the deadline for debit notes. This deadline, however, only applies to the declaration of tax liability due to modifications. There is no time limit on when a debit note must be issued by supplier. The deadline in this part is for submitting the debit note details in the GST return. Details of the debit note must be disclosed by the supplier in the relevant month's return.

Process for claiming Input GST on debit note

Debit notes are required in order to receive the input tax credit, hence it's crucial that they appear in the GST return. The following describes how the supplier sent the debit note details and how they appeared in the recipient's account:

• The supplier provides the debit note details at the time the GSTR-1 is filed.
• Based on the information provided by the supplier, the recipient's GSTR-2B shows the details of the tax paid as an input tax credit.
• The supplier pays the additional tax liability in GSTR-3B of the relevant month.
• The input tax credit is available for claim by the recipient at the time of GSTR-3B filing.

Credit note in GST

Under section 2(37) of the CGST Act, 2017, "Credit note" is defined as "Means a document issued by the registered person under section 34(1) of the act." According to the act's section 34(3), if the original invoice's taxable value or tax amount exceeds the actual taxable value or tax amount for the supply made, a credit note must be issued. The tax obligation is reduced on the issue of a credit note. However, it should be mentioned here that the input tax credit would be reversed if the credit note is rejected by the recipient. There is no decrease in the tax obligations.

Let's say that Mr. Buyer has received a tax invoice from Mr. Seller for the taxable amount of Rs.90000. Of which, products worth Rs.5000 were discovered to be defective and were given back to Mr. Seller by Mr. Buyer. In this instance, Mr. Seller now gives Mr. Buyer a credit note for Rs.5000.

Reasons why a Credit note is issued

Here are a few cases when the value of tax invoices reduces and the supplier must provide a credit note to reflect the decrease:

• An incorrect figure that exceeds the actual value of the products or services rendered has been declared by the provider.
• The amount received by the recipient is less than what has been mentioned in the tax invoice;
• The supplier has mistakenly declared a higher tax rate than what is appropriate for the type of goods or services, or both, supplied.
• Due to a sales return;
• Because the recipient is dissatisfied with the quality of the products or services, or both, provided;
• Post-sale reimbursement of all or part of the invoice value

Time Limit to issue a Credit Note

The deadline for issuing a credit note is likewise non-mandatory, just like it is for a debit note. Section 34(2) of the act specifies the deadline for providing credit note details in the GST return. The credit note's details must be provided by the registered person who is obligated to issue it by the sooner of the following dates.

• either the date of providing the relevant annual return, or
• the 30th of November following the end of the relevant financial year in which the supply is made.

Process for claiming Input GST on debit note

The tax liability is decreased when the supplier issues a credit note. The credit note's details must be provided by the registered person issuing it within the time limit specified. The tax liability cannot be decreased if information is not provided within that time limit.

• The supplier provides the credit note details in form GSTR-1.
• The recipient's GSTR-2B shows the tax reduction data as an input tax credit, in accordance with the supplier's details.
• This input tax credit will automatically appear in GSTR-3B table 4B(2), which is for the input tax credit reversal.

Difference Between Debit Note And Credit Note

Debit Note	Credit Note
Debit note is issued when the actual taxable value or tax payable is less as compared to the taxable value or tax charged in the invoice.	Credit note is issued when the actual taxable value or tax payable is more as compared to the taxable value or tax charged in the invoice.
On the issuance of debit note, the recipient can claim ITC on increased value.	On the issuance of credit note, the recipient have to reverse the ITC as per the Credit note
Debit Note increases tax liability of the supplier.	Credit Note decreases tax liability of the supplier.