Post issuance of the original invoice (i.e. tax invoice), any changes on account of increase/ decrease in taxable value or tax paid, due to any reason, are to be given effect via debit note and credit note in GST.
Debit and credit note possess their own importance under GST. In the present article, we will briefly understand the difference between a debit note and credit note in GST perspective.
What is Debit note under GST
‘Debit note’ as defined under section 2(38) of the Central Goods and Services Tax Act, 2017 means a document issued by a registered person under section 34(3).
In simple terms, a ‘debit note’ comes into the picture when the taxable value/ tax charged in the tax invoice is less as compared to the actual taxable value/ tax payable in respect of the supply.
‘Debit note’ is also popularly known as supplementary invoice as the issuance of a debit note creates additional tax liability. Hence, the treatment of debit note is the same as that of any tax invoice.
Accordingly, a ‘debit note’ issued by the supplier under section 34(3) is one of the documents on the basis of which input tax credit is available to the buyer/ recipient.
Understand concept of ‘debit note’ with a simple example
Suppose, Mr. A (supplier) has issued a tax invoice to Mr. B (recipient). However, Mr. A erroneously declared the taxable value as INR 5,00,000 instead of the actual taxable value INR 6,00,000. Now, Mr. A will issue a debit note for INR 1,00,000 charging appropriate tax thereon.
It is also important to note that a one-to-one correlation of tax invoice vis-à-vis debit note is not required.
When we issue debit note in GST
Some of the common situations wherein the debit note is required to be issued are highlighted hereunder –
- The supplier has wrongly declared the taxable value which is less than the actual value of goods or services;
- The supplier has wrongly declared the lower tax rate as compared to the actual tax rate applicable to the goods or services;
- The quantity received by the recipient is more than the actual quantity declared by the supplier in the tax invoice;
- Any other similar reason.
Debit note format under GST
GST law doesn’t prescribe any specific format of debit note, however, as per rule 53(1A) of the Central Goods and Services Tax Rules, 2017 the debit note should contain the following particulars
- Name, address, GSTIN (Goods and Services Tax Identification Number) of the supplier;
- A consecutive serial number;
- Date of issue;
- Name, address, GSTIN of the recipient (if registered) or address of delivery, State name and State code (if unregistered);
- Serial number and date of corresponding relevant tax invoice/ bill of supply;
- Value of the taxable supply, rate of tax and the amount of tax credited to the recipient;
- Signature/ digital signature.
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What is the time limit for issuance of debit note
A specific time limit for the issuance of debit note is also not prescribed under the GST law. However, the provisions of section 34(4) of the Central Goods and Services Tax Act, 2017 states that as and when the debit note is issued the same is to be reflected while GST return filing of the respective month.
Notably, as per provisions of section 16(4) of the Central Goods and Services Tax Act, input tax credit in respect of debit note of the respective Financial Year will not be available if the same is not issued within the following time limit
- Earlier of
- 30th November following the end of the Financial Year to which such debit note pertains; or
- Date of furnishing of relevant annual return.
Reflection of debit note in GST return
As seen above, the debit note, being one of the input tax credit availment document, it is important to duly reflect the same in the GST return. The reflection of the debit note in the GST returns of the supplier as well as the recipient is highlighted hereunder
- The supplier will provide the details of the debit note while filing the return in Form GSTR-1;
- Supplier will pay the differential tax while filing return in Form GSTR-3B;
- Based on the details furnished by the supplier, the details of the input tax credit will get auto-populated in Form GSTR-2B of the recipient;
- The recipient will avail input tax credit while filing return in Form GSTR-3B.
What is Credit note under GST
‘Credit note’ as defined under section 2(37) of the Central Goods and Services Tax Act, 2017 means a document issued by a registered person under section 34(1).
Putting up simply, ‘credit note’ comes into picture when taxable value/ tax charged in the tax invoice is more as compared to actual taxable value/ tax payable in respect of the supply.
Suppose, Mr. X (supplier) has issued a tax invoice to Mr. Y (recipient). However, Mr. X erroneously declared the taxable value as INR 10,00,000 instead of actual taxable value INR 9,00,000. Now, in such a case, credit note is to be issued by Mr. A for INR 1,00,000.
When we issued credit note
Figuring out some of the common situations when the credit note is required to be issued –
- Supplier has wrongly declared the tax rate and the said tax rate is higher than actual tax rate applicable to the goods/ services;
- Supplier has wrongly declared the taxable value and the said taxable value is more than the actual value of the goods/ services;
- The quality of goods/ services so supplied by the supplier is not satisfactory to the recipient and hence resulting into partial or total reimbursement on the invoice value;
- The actual quantity received by the recipient is less as compared to the quantity declared by the supplier in the tax invoice;
- Supplier has given post sale discount to the buyer/ recipient;
- Sales return;
- Any other similar reason.
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Credit note format under GST
Importantly, GST law doesn’t prescribe the specific format of credit note in GST. However, as per rule 53(1A) of the Central Goods and Services Tax Rules, 2017 the credit note should contain the following particulars
- Name, address, GSTIN (Goods and Services Tax Identification Number) of the supplier;
- A consecutive serial number;
- Date of issue;
- Name, address, GSTIN of the recipient (if registered) or address of delivery, State name and State code (if unregistered);
- Serial number and date of corresponding relevant tax invoice/ bill of supply (if possible). Importantly, one-to-one correlation of tax invoice vis-à-vis credit note is not required;
- Value of taxable supply, rate of tax and the amount of tax credited to the recipient;
- Signature/ digital signature.
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What is the time limit of issuance of credit note
GST law doesn’t prescribe any time limit for issuance of credit note. However, as per provisions of section 34(2) of the Central Goods and Services Tax Act, 2017, the registered person is required to reflect the details of credit note in the return within earlier of the following dates
- 30th November following the end of the respective Financial Year; or
- The date of furnishing of the relevant annual return.
Reflection of credit note in GST return
As and when the credit note is issued, the same is to be reflected while filing return in Form GSTR-1. Accordingly, once the details are furnished in Form GSTR-1, corresponding effect of the same will be auto-populated in Form GSTR-2B of the recipient.
Hence, issuance of the credit note will have following effect –
- Supplier will provide the details of the same while filing return in Form GSTR-1;
- Based on the details furnished by the supplier, the same will get auto-populated in Form GSTR-2B.
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Difference between debit note and credit note in GST
Following table summarizes the basic differences between the debit note and credit note in GST
Particulars | Debit note | Credit note |
|---|---|---|
Defining section | Definition covered under section 2(38) of the CGST Act | Definition covered under section 2(37) of the CGST Act |
Issuance | Debit note is to be issued when the taxable value or tax charged in the tax invoice is less as compared to actual taxable value or tax payable. | Credit note is to be issued when the taxable value or tax charged in the tax invoice is more as compared to actual taxable value or tax payable. |
Effect on tax liability | The resultant tax liability will increase | The resultant tax liability will decrease |
Availability of input tax credit | Input tax credit is available to the recipient of the goods or services on the basis of debit note | Input tax credit is not available to the recipient of the goods or services on the basis of the credit note |
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