What is a debit note in GST?

Someone associated with a business in India should know about debit notes. Truth be told, it is an important aspect in the context of GST, or goods and services tax. Businesses use various documents and issue them under different circumstances. This is true, especially when a transaction includes GST. Such documents include the following:

  • Tax invoice
  • Debit note
  • Credit note 
  • Bill of supply

If you are here to learn about a debit note in GST, welcome to this guide. Here, you will discover the ins and outs. Want to learn what the debit note means? Read on and get an in-depth insight into the meaning and definition of a debit note from the given point:

Introducing You to the Concept of a Debit Note in GST: What Is It?

So, what is a debit note? Simply put, a debit note happens to be a document. It consists of basic information based on any adjustments related to the invoice amount. It’s also called supplementary invoices. The CGST Act’s Section 36 explains that records related to the debit note should be retained from a specific due date of the return for a specific year (the annual return). It expires after 72 months. A buyer of any service or good can issue this document to a seller.

In addition, it also notifies the amount required by a seller to debit the given goods, which are then returned by buyers to the seller. With this document, the seller gets notified about the quantity or amount of the returned goods. So, it’s an intimation to a seller to return the money back to the respective buyer. Here’s a debit note example:

Suppose the product cost is Rs. 460, and the invoice is recorded wrongly as Rs. 400. The debit note here is Rs. 60, and the supplier issues it.

In general, the debit note is important to carry forward accounting processes. Considering GST and its purpose, the supplier needs to issue both credit and debit notes for a particular service or good. If the supplier cannot show these details in their returns, a recipient has to declare them in the supplier’s returns. The supplier must accept the documents to make the changes to their valid returns. Let’s now learn the role of the debit note in GST.

Understanding the Most Important Aspects of a Debit Note

The following points present the features of a debit note: Read on if you want to get a better understanding:

  1. Issued by a Seller or Buyer: Sellers can issue the document if the invoice has certain mistakes. On the other hand, even a buyer can issue the document to the seller when returning to enlist the details of the return.
  2. Issued on a Credit Purchase: The debit memo accompanies services or goods bought on credit.
  3. Should Contain Appropriate Reason: A buyer should mention why they want to return the product or service.
  4. Acceptance from Sellers: It’s a valid document only when a seller accepts it. Note that sellers can make changes to the accounts before approval.
  5. Reduces the Debt Obligation of the Buyer: If you are a buyer, the debit note will reduce your debit liabilities toward your seller.
  6. Available in the Purchase Return Book: It reduces the purchaser’s credit purchase amount, thereby increasing the overall purchase return figures. Considering the accounting entries, purchases get debited while purchase returns get credited.

Outlining the Reasons Behind Issuing a Debit Note: When Should a Buyer or Seller Issue It?

When are debit notes issued? Simply put, a buyer can issue the debit note for the reasons explained below:

  • Due to the incorrect amount mentioned in an invoice
  • Receipt of any damaged or defective product
  • Overstatement of the invoice’s value
  • When the product or service is cancelled during the purchase
  • The product doesn’t match the quality expected by the buyer.

A seller can issue the debit note for these reasons:

  • Understatement of the invoice’s value
  • Increase in the amount payable to the seller
  • Additions included in the order of the service or product

The Role of Debit Notes in GST

In GST, the debit note is a document that should be issued to a recipient in the following instances:

  • When the tax invoice is issued for the supply of any service or good (or even both),
  • When the tax charged on invoices or taxable values tends to be less than the actual taxable value or payable amount, considering the supply
  • When the supplied good or service is greater than the quantity as described in the original invoice

In the above cases, the supplier should issue the debit note to the respective recipient.

Note: There are some rules considering the debit note and its role in GST. The most important of all is that it forms part of the details concerning GSTR-1. This is the month when the supply of services or goods is made. These details also form part of Forms GSTR-2B and GSTR-2A for recipients. Soon after the verifications, the recipient can approve and submit it as an important part of the form.

Previously, the original number of the invoice used to be compulsory to quote while reporting a debit or credit note in Forms GSTR-1 and 6. But now, the amendment related to delinking debit notes from original invoices has made some changes:

  • recognizing whether it’s interstate or intrastate (supply type) to provide the place of supply for a debit or credit note.
  • Where the credit or debit note gets issued for differences in tax rates, the value is shown as zero (so entering the specific tax amount is enough).

The delinking amendment affected ITC or input tax credit, in relation to the debit notes. The time for availing the ITC was connected to the invoice’s data prior to the amendment. But after the amendment, it is calculated as per the debit note’s date.

Who can issue a debit note?

Before you learn about the debit note format, here’s a presentation on issuing the debit note. Here’s a list of ways a debit note can be issued:

  • A buyer can issue the debit note.
  • A seller can issue the debit note.

Outlining the Debit Note Format: Things to Note

As such, there is no prescribed format for preparing the debit note. But the truth is that a debit note can be issued by a supplier to a recipient only if it contains the following details: Note down the details from the below-offered points to get a better understanding:

  • Name, full address, and GSTIN (Goods and Services Tax Identification Number) of the supplier
  • Nature of their document, i.e., whether it is a debit note or a credit note
  • The consecutive serial number (note that it should be unique) must be:

Less than 16 characters,

It should be in a single or multiple series.

Must contain numerals, special characters, and alphabets (special characters include dashes, hyphens, or any other signs).

The date of issue should be mentioned.

Name, the recipient’s GSTN, and their address (in case they are already registered)

  • For unregistered recipients, they need to give details like name, address, and address of the delivery (including the name of the state as well as the pin code of their locality).
  • The date of the tax invoice, the serial number, or the supply’s bill
  • The ultimate value of the taxable supply of services or goods, the tax rate, and the total amount of the tax debited to a recipient
  • A digital signature or handwritten signature of the supplier or authorized representatives

Is there any time limit for issuing the debit note?

The answer to this question is no. Basically, you can issue the debit note anytime. However, it is important to note that you should follow the GST laws while issuing it. So, the debit note must be issued at the earliest. That means you can issue it before September 30 in one financial year after the year when the services or goods were supplied to you.

Alternatively, you can also issue it before or on the date when the taxpayer files the annual return (i.e., GSTR-9) for one fiscal year.

If you fail to issue it within the stipulated time, the tax liability increases, and so do penalties as well as interest levies.

A Brief on Debit Note Book: What’s It?

The debit note book is a completely separate book. In short, debit notes have two copies, whereby the supplier receives one copy. On the contrary, the other book remains in the book and serves as the record. When a supplier sends the credit note, it enables effective monitoring and tracking. As the supplier has one copy of the note with them, they can use it as a reference point when issuing a credit note.

The Final Words

As you have learned, the debit note serves as a vital tool for both buyers and sellers in GST. From maintaining financial records to complying with tax regulations, it does everything in between. While buyers can issue it to ensure they claim a tax credit or receive refunds when applicable, sellers can also reap the benefit. In short, sellers can rectify the errors in invoices. Thus, both sellers and buyers should understand it and use it effectively in the complicated world of GST.

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