Debit Note and Credit Note come into the picture whenever some error has been committed during a financial transaction. The mistake can be simple human or due to some mechanical fault. To neutralize the effect of this fault on the invoices, a Debit Note or a Credit Note may be issued. These documents are recognized and accepted when you Prepare GST Invoice. Not only in India, but they are also acceptable and used across the globe in GAAP Accounting. Any mistakes in invoices can be revised with the help of these notes.

When is the Debit Note issued?

Basically, you would issue a Debit Note when the amount payable to the other has decreased. Let’s understand the situations leading to get GST Invoice revised, by issuing a Debit Note.

Issued by the Buyer:

debit note

debit note: buyer to issue: Legal Raasta

  • In cases where the value of the goods and/or services has changed after they have been delivered. Debit note is issued by the buyer, to the seller/supplier, when he comes to know that the value or the tax charged is more than the actual value or actual tax payable with respect to such supply. This is issued after the Sales Invoice has been raised, for an earlier transaction.
  • When the interest charged or the fees charged are more than the earlier agreed amount. A firm may need to issue a Debit Note to correct the mistakes in sales, purchase or loan invoice.
  • Also, in situations, when goods and/or services are to be returned, in part or whole, or the prices have undergone a revision. These situations may occur due to the product not being up to the mark or found to be less in quantity. Now the buyer needs to validate the amount, in his accounting, whether reimbursed or waiting to be reimbursed. In such a case too, the receiver issues a debit note reflecting this accounting transaction.
  • A business might issue a debit note in response to a received credit note.

Issued by the Seller:

  • A seller, who has GST Registration, may also issue a Debit Note in certain situations. For example, if some extra quantity has been delivered by mistake. Or an incorrect amount, (value or tax) was entered in the invoice. In such cases, the supplier will issue a Debit Note. So that in his Bookkeeping and Accounting, the buyer’s account will show a debit balance.
  • A Debit Note, furnished by a seller, will only be considered for revision in the values of an invoice, under the GST law. The same has to be accepted by the buyer for a corresponding impact on Input Tax Credit (ITC) on the supply.

Details to be covered in a Debit Note

 The Debit Note must provide details of the amount of money to be debited from the sellers’ account. It must also be accompanied by a reason for the same.
debit note

debit note: a Sample Format: Legal Raasta

Although there is no format for a Debit Note, as per the Rule 53, of GST Act, some details have been specified. These are as follows:
  1. Goods and Services Identification Number (GSTIN), name and address of the supplier,
  2. Nature of the document,
  3. A unique and consecutive serial number for every financial year,
  4. Issue date of the Debit Note,
  5. GSTIN, name and address of the buyer, in case he doesn’t have GST Registration, then his Unique ID Number,
  6. The address of delivery, along with the name of State and its code,
  7. Details (such as Date and Serial Number) of the GST Invoice or, the bill of supply, against which the Debit Note has been raised,
  8. The taxable value of goods and/or services,
  9. Tax rate and the amount of the tax charged, and
  10. Signature, Digital Signature of the seller or the Digital Signature of his authorized representative.

Applicable Time-Lines under GST

This document can be issued anytime without any time limit, once the corresponding Sales Invoice has been raised.

The details have to be declared, during GST Filings, on

  1. September following the end of the year in which such sale was made or
  2. the date of filing of the related annual return,

whichever falls earlier.

In the GST Return Filing Forms, the tax liability will get adjusted against the Sales Invoice. But any reduction in output tax liability of the seller will not be permitted. Especially if the tax and interest on such sale have already been passed on to any other person.

How long should the record of the Debit Note be retained?

The records of the Debit Note have to be kept at least up to 72 months, from the due date of the filing of the related annual return.
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