Meaning of Debit Note and Credit Note: A tax invoice must always be originally issued by a provider of goods or/and services. However, there might be some circumstances when an inaccuracy in providing the necessary invoice takes place and where various additional irregularities with the number or quality of products and services provided arise. The provider might simply issue a debit or credit note to fix such issues and problems, depending on the context.
What is a Debit Note?
A debit note is documentation or ticket issued by one entity to another that explicitly confirms that the other party’s bank account has been debited in the sender’s records.
Whenever there is a requirement for an increment in taxable value or a raise in GST levied in the invoice, a supplier will provide a debit note per Section 34(3). There is no defined layout for this; it could perhaps be a letter or a formalized declaration.
Nevertheless, under GST, the debit note can exclusively be provided by the supplier.
For example, a merchant, Mr X, buys products from Mr Y. Mr X soon discovers after collecting the material that the commodities contain several faulty goods worth Rs. 15,000. Mr X should now lessen the obligation in his books as payment due to creditor Mr Y. As a result of the change, Mr X sends Mr Y a debit note for Rs. 15,000, declaring that he has debited his account in his records.
Cases in which a Debit Note is Issued
- The provider has inaccurately assessed the items or services at a reduced amount than the authentic quantity.
- Instead of expressing the appropriate tax rate relevant to the products and services supplied, the supplier has claimed a lower tax rate on the invoicing.
- The quantity delivered to the recipient is larger than the amount reported on the tax invoice.
- Any other combination of circumstances that is fairly comparable.
What is a Credit Note?
A credit note is documentation or certificate issued by one party to another confirming that the other party’s account has been credited in the sender’s books.
When goods are rejected or deemed unsatisfactory or a drop in the taxable amount or GST charged in the invoice, a registered person provides a credit note under Section 34(1). The credit note is centred on an original invoice that has previously been given.
As a result, when the authorized person provides the Credit note, the supplier’s tax burden is lowered.
Cases in which a Credit Note is Issued
- The provider has wrongly evaluated the items or services at a greater value than the authentic number.
- Rather than declaring the appropriate tax rate applicable to the products or services supplied, the provider has stated a higher tax burden in the invoice.
- The volume given to the receiver is below what is specified on the tax invoice.
- The receiver is dissatisfied with the condition of the products or services provided, culminating in a partial or whole refund of the invoice amount.
- Any other circumstance that is fairly comparable.
Debit/Credit Note in Compliance with GST
The following are the reasons listed in GST returns under which a debit or credit note can be authorized:
- Return of Sales
- After-Sale Discount
- Services deficiency
- Invoice rectification
- POS change
- Finalization of Provisional Evaluation
- Other viable options
The Note Layout
Specifications about issued debit and credit notes must be reported on Form GSTR-1 for their given period. This information is provided to the beneficiary in Form GSTR-2A, which must be acknowledged and filed in Form GSTR-2.
There really is no standardized structure, although some extremely important particulars should be included in the debit or credit note, like:
- Name, and address and the supplier’s GSTIN.
- Document’s nature.
- A sequential reference number of no more than sixteen characters, in one or more series, featuring alphabets or numbers or special symbols such as hyphens and slashes, and any unique combination thereof, exclusive for a budgetary year.
- Date of issue of the corresponding note.
- If officially registered, the recipient or receiver’s address and name, and GST Identification Number or Unique Identity Number.
- When the receiver is not listed, provide the recipient’s name, address, and delivery address, as well as the name of the state and its pin code.
- The serial number and date of the accompanying tax invoice are provided.
- The worth of the taxable supply of goods or services, the tax percentage and the amount of tax charged to the beneficiary.
- The supplier’s or legally authorized representative’s signature or digital signature.
How Long Should a Credit/Debit Note Be Kept?
The credit note and debit note information must be maintained for seventy-two months well after the given deadline for completing the annual report for the year corresponding to such records and reports.