Simple way to understand difference between Debit Note and Credit note.

Generally, Credit means adding an amount of money to an account. Debit means removing an amount of money from an account. Whenever there are amount related errors in business, Debit note and credit note come into play.

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Credit Note

A credit note or credit memo is a document issued by a seller to a buyer of goods or services for the Sales return. In other words the credit note shows the reduction in sales.

In GST, supplier of goods or services or both is compulsorily required to issue a tax invoice. However, during the course of business situations arises like

• The supplier has mistakenly declared a value which is more than the actual value of the goods or services provided. For instance, Bill shows Rs.1000 whereas Goods worth Rs. 800 delivered.
• The supplier has mistakenly declared a higher tax rate than what is applicable for the kind of the goods or services or both supplied. For example, GST rate charged in bill is 12% whereas applicable GST rate is 5%.
• The quantity received by the recipient is less than mentioned in the tax invoice. For instance, Invoice shows 10Kg of rice whereas goods actually delivered were 5kg.
• The quality of the goods or services or both supplied is not to the satisfaction of the recipient. In other words,goods delivered to recipient were of low quality.
• Any other similar reasons, which decreases the value of sale.

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.

The above information can be summarized in the  picture below as:

Debit Note

A debit note is a document issued by a

• Buyer to a seller as a means of formally requesting a credit note for the Purchase returns.
• Seller to buyer to increase or to make addition in the tax invoice.

In GST, Debit note has been provided in the context to seller. Sometimes, there could be situations where the supplier wants to increase or to make addition in the tax invoice by the following reasons:

1. The Supplier has declared value which is less than the actual value of the goods or services or both provided. For instance, goods supplied of worth Rs.10000 but the amount mentioned in invoice is Rs. 8000.
2. The Supplier has declared a lower tax rate than what is applicable for the kind of the goods or services or both supplied. For example, GST rate charged on bill amount at 12% whereas applicable GST rate is 18%.
3. The quantity received by the recipient (buyer) is more than what has been declared in the tax invoice. For Instance, Goods supplied 100 units whereas disclosed in invoice 50 units.
4. Any other similar reasons, which arises increase in the value of the invoice.

Once the Debit note has been issued, the tax liability of the supplier will increase .

The above information can be summarized in the picture below as:

Format of Debit note or Credit note under GST law

There is no prescribed format for credit/ debit note issued by a supplier. However, it must contain the following particulars :

(a) Name, address and GSTIN of the supplier;

(b) Nature of the document;

(c) Consecutive serial number of maximum 16 characters containing only alphabets and/or numerals, unique for a financial year,;

(d) Date of issue of document;

(e) Name, address and GSTIN or Unique Identity Number, if registered, of the recipient;

(f) 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;

(g) Serial number and date of the corresponding tax invoice or bill of supply;

(h) Value of taxable supply of goods or services, rate of tax and the amount of the tax credited/debited to the recipient; and

(i) Signature/digital signature of the supplier or his authorized representative.

Difference between Composition and Regular Dealer.

Important Points

• The supplier shall mention the details of debit or credit note in from GSTR-1.
• On filing the details it will get auto-populated in form GSTR-2A for the recipient. The recipient can either modify or accept or reject these details and file form GSTR-2.
• The time limit is only for issuing credit note and not debit note. Credit note shall be issued earlier of :

 September following the end of the year in which such supply was made,

or

the date of filing of the relevant annual return.

• The tax liability will be adjusted but no reduction in output tax liability of the supplier will be permitted if the incidence of tax and interest on such supply has been passed on to any other person.
• Debit Note/Credit note will include a supplementary invoice

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