Debit note and Credit Note
GST Law & Practice Notes
B.Com 6th Sem CBCS Pattern
Under GST regime, tax invoice is required to be issued by a registered dealer as and when the supply of goods is made and within thirty days of supply of service. Such tax invoices contain information regarding the item supplied, value of supply, classification of supply and the GST on such supply. The amount of GST mentioned in any invoice can be claimed as input tax credit by recipients authorised to claim it.
Sometime, the value of supply or the GST may be wrongly stated in an invoice. Such error, may either lead to increase or decrease in the value and the amount of GST as shown in the original invoice. Such discrepancy, as and when located is required to be modified. For making modification, neither the seller nor the purchaser is authorised to make any alteration in the invoice issued either by cancelling the original invoice or by making any correction on it. Such correction can be made only by issuing ‘supplementary tax invoice’. The supplementary invoice can be in the form of either a “Debit Note” or a “Credit Note”. Therefore, issue of Credit note / Debit note is a convenient and legal method by which the value of the goods or services and GST in the original tax invoice can be altered or revised.
Meaning and Definition of Credit Note
Credit note is issued when the value of goods or services invoiced earlier requires downward revision. The issue of the credit note allows the supplier to decreases his tax liability in his returns. Hence, the supplier will not be required to undergo the tedious process of claiming refunds.
According to section 2(37) of the AGST Act, 2017, “credit note” means a document issued by a registered person under sub-section (1) of section 34 of the Act. Credit note is also termed as ‘supplementary invoice’.
Situations when Credit note is issued
According to section 34(1) of the AGST Act, 2017, for issuing a Credit Note, one or more invoices for supply made in a financial year should have been issued earlier and subsequently any of the following situations has arisen:
- The supplier has erroneously declared value in the tax invoice which is more than the actual value of the goods or services provide;
- The tax charged as shown in the tax invoice is more than what should have charged;
- The quantity received by the recipient is less than what has been declared in the tax invoice;
- The recipient has returned the goods;
- The quantity of the goods or services or both supplied is not to the satisfaction of the recipient thereby necessitating a partial or total reimbursement on the invoice value; and
- Any other similar reasons;
In order to regularize these kinds of situations the supplier is allowed to issue ‘Credit Note’ to the recipient. Once the credit note has been issued, the tax liability of the supplier will reduce.
Meaning and Definition of debit note
Debit note is issued by a supplier when the value of goods or services invoiced earlier requires upward revision. The issue of the debit note results into increase in his tax liability.
According to section 2(38) of the AGST Act, 2017, “debit note” means a document issued by a registered person under sub-section (3) of section 34 of the Act. Debit note is also termed as ‘supplementary invoice’.
Situations when Debit note is issued
For issuing a Debit Note, one or more invoices for supply made in a financial year should have been issued earlier and subsequently any of the following situations has arisen:
- The supplier has erroneously declared value in the tax invoice which is less than the actual value of the goods or services provided;
- The tax changed as shown in the tax invoice is less than what should have charged;
- The quantity received by the recipient is more than what has been declared in the tax invoice;
- Any other similar reasons.
In order to regularize these kinds of situations, the supplier is allowed to issue ‘Debit Note’ to the recipient. Once the debit note has been issued, the tax liability of the supplier will increase. The registered persons may issue consolidated credit/debit notes in respect of multiple invoices issued in a Financial Year.
Time limit for issuing the Credit Note/Debit note:
Credit Note or Debit Note can be issued any time i.e., there is no time limit for issuing the Credit Note or Debit Note. Also, Credit Notes or Debit Notes issued have to be declared in the GST returns filed in the following month for the month in which the document is issued.
The details have to be declared on earlier of the following dates:
- September following the end of the year in which such supply was made,
- The date of filing of the relevant annual return.
Tax liability for Debit Note:
The issuance of a debit note or a supplementary invoice creates additional tax liability on the supplier. The treatment of a debit note or a supplementary invoice is identical to the treatment of a tax invoice as far as return and payment of taxes are concerned.
Maintenance of Records of Credit/Debit Note:
The records of the credit/debit note or a supplementary invoice have to be retained until the expiry of seventy-two months from the due date of furnishing of annual return for the year pertaining to such accounts and records.
Where such accounts and documents are maintained manually, it should be kept at every related place of business mentioned in the certificate of registration and shall be accessible at every related place of business where such accounts and documents are maintained digitally.
Contents of Debit Note and Credit Note
The credit note/debit note/revised tax invoice shall contain the following particulars:
- Name, address, and GSTIN of the supplier,
- Nature of the document,
- A consecutive serial number containing only alphabets and/or numerals, unique for a financial year,
- Date of issue of the document,
- Name, address and GSTIN/Unique ID Number, if registered, of the recipient,
- Name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is unregistered,
- Serial number and date of the corresponding tax invoice or, as the case may be, bill of supply,
- The taxable value of goods or services, rate of tax and the amount of tax credit or, as the case may be, debited to the recipient, and
- Signature or digital signature of the supplier or his authorized representative.