Debit notes or debit memos refer to a document commonly used in Business-to-Business (B2B) transactions. It helps the buyer keep track of his debt obligations towards the supplier for goods or services provided. It also helps suppliers rectify undervalued invoices.
A debit note is a commercial document that usually contains information with regard to any adjustments to be made to a particular invoice amount. Debit notes are also referred to as supplementary invoices. As per Section 36 of the CGST Act, the records pertaining to debit notes must be retained from the due date of furnishing of annual return for that particular year until the expiry of 72 months.
Scenario 1: By a Buyer
Jackson Enterprises makes a purchase on credit from Obi Ltd. for 10,000 whistles at the rate of Rs.15 per whistle. Obi make the delivery for the order, and an invoice for the same is given to Jackson Enterprises at the time of delivery. Upon inspection, it is found that 430 whistles are damaged, 200 are defective.
Jackson Enterprises creates a debit note to be sent to Obi Ltd. along with the return of the 630 whistles. The debit note and the return of the whistles indicate that Obi Ltd. will have to debit the amount due from Jackson Enterprises by Rs.9,450 (630 whistles x Rs.15).
Scenario 2: By a Seller
Jackson Enterprises makes a purchase on credit from Obi Ltd. for 10,000 whistles at the rate of Rs.15 per whistle. Obi makes the delivery. The seller issues an invoice for the order, given to Jackson Enterprises upon delivery. However, Obi Ltd. realises that the rate per whistle is Rs.14 in the invoice submitted to Jackson Enterprises, thus understating the invoice by Rs.10,000.
Obi Ltd. then creates a debit note to be sent to Jackson Enterprises, thus rectifying the error mentioned above.
A debit note is issued by a buyer to a seller for the following reasons:-
A debit note is issued by a seller to a buyer for the following reasons:-
As per Section 34(3) of the CGST Act 2017, a supplier of goods and services issues a debit note when;
One of the most important roles that a debit note plays under GST is that it forms part of the details with respect to GSTR-1, the month in which the supply of goods was made. The same details form part of Form GSTR-2A and GSTR-2B for the recipient. Once the verification is done, the recipient may approve of it and submit it as part of their GSTR-3B.
Earlier, when reporting a credit note or a debit note, the original invoice number was mandatorily required to be quoted on the GSTN portal in Form GSTR-1 and Form GSTR-6.
However, the amendment pertaining to the delinking of debit notes from their original invoice resulted in the following:-
The delinking amendment also affected the treatment of Input Tax Credit (ITC) with respect to debit notes. Before the amendment, the time limit for availing ITC was linked to the date of the invoice, not the date of issue of the debit note. However, post the amendment, the time limit for availing ITC is now computed as per the date of the debit note.
For instance, if an invoice was issued in March 2019, and debit note for the same was issued in October 2019, the last date for availing ITC would be the due date of Form GSTR-3B for October 2020, since the debit note was issued in the year 2019-2020.
Where an invoice issued by the supplier requires a certain revision or change to be made to it, the amendment to the same may be made on the GST portal. There are two cases with regard to amendments:
The reporting requirements to be made in this case will have to be entered in ‘Table 9C – Amended Debit/Credit Notes (Registered)’ of the Form GSTR-1.
The reporting requirements to be made in this case will have to be entered in ‘Table 9C – Amended Debit/Credit Notes (Unregistered)’ of the Form GSTR-1.
In general, a debit note can be issued at any time. However, as per the GST laws, the debit note will need to be issued at the earliest of the following dates:-
Failure to issue the debit note within the above stipulated time will increase tax liability, interest levy, and penalties.
There is no fixed format for a debit note prescribed by law. However, some fields must be mandatorily present:-
The following steps guide a seller to create a debit note on ClearOne invoicing software:
Log on to https://one.clear.in/ and register using your mobile number.
On the left side of the screen, in the collapsible menu, click on ‘Sales’. Under the drop-down list, select the debit note/credit note option.
The name, address, GSTIN, and contact details of the supplier and recipient have to be mentioned in the debit note, along with the date of the invoice and due date for payment.
Fill in the rest of the details regarding the description of the goods, the HSN code associated with the goods to determine the rate of GST applicable on them. Cue in the invoice reference number and the corresponding date of the invoice, and the details with regard to the type of supply.
The final steps involve adding the details regarding the mode of payment (bank account or UPI details) and then uploading the signature so that the debit note is duly verified.
Now that the invoice is complete in all respects, you have the option to ‘Send Note’ to your customer, generate an e-invoice, download or print it.
The convenience of creating the debit note on ClearOne is seen with its features on display such as:-
Real-time updates – ClearOne is subject to regular monitoring by a constructive team of tax experts and some of the best software technologists, thus ensuring timely updates and structural improvements.