All about Debit notes

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08 min read

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.

What is a Debit Note?

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.

Process of Issuing a Debit Note

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).

debit note

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.

debit note

Reasons for Issue of a Debit Note

A debit note is issued by a buyer to a seller for the following reasons:-

  • Amount stated in the invoice is incorrect
  • Receipt of defective/damaged goods
  • Overstatement of the value of the invoice
  • Cancellation of the purchase of product/service
  • When goods received do not measure up to the buyer’s expected standards

A debit note is issued by a seller to a buyer for the following reasons:-

  • Amount payable to the seller increases
  • Understatement of the value of the invoice
  • Addition made to the order of product/service

Debit Note Book or Ledger

  • A separate book is maintained called a debit note book. Two copies of the debit notes are maintained, one of which will be given to the supplier. The other one remains in the debit note book and serves as a record.
  • When the credit note is received from the supplier, the same is marked off against the debit note in the debit note book, thus enabling a system of efficient tracking and balancing.
  • Since one copy of the debit note is given to the supplier, the supplier may use it as a reference point while issuing the credit note.

Importance of Debit Note under the GST Law

As per Section 34(3) of the CGST Act 2017, a supplier of goods and services issues a debit note when;

  • Issuing of a tax invoice for the supply of services and goods
  • Taxes charged as per the invoice are lower than the actual taxable value of the supply made
  • Goods/services supplied are more in quantity than the initially agreed commitment as per the invoice

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:-

  • To identify the supply type (intrastate or interstate), the place of supply can be provided for a particular debit note or a credit note.
  • Where a debit note or credit note is issued only for the difference in the tax rate, the value of the note can be shown as zero. Entering the tax amount will be sufficient.

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.

Amendments to Debit Notes

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:

  • Amendments to be made to debit/credit note issued to registered persons

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.

  • Amendments to be made to debit/credit note issued to registered persons

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.

Time limit to Issue a Debit Note

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:-

  • On or before 30th September in a financial year following the year in which the goods and/or services were supplied.

OR

  • On or before the date on which the taxpayer files the GSTR-9 (Annual Return) for the financial year.

Failure to issue the debit note within the above stipulated time will increase tax liability, interest levy, and penalties.

Format and Contents of a Debit Note

There is no fixed format for a debit note prescribed by law. However, some fields must be mandatorily present:-

  • Name, address, contact details and GSTIN of the supplier
  • Debit note the serial number
  • Name, address, contact details and GSTIN of the recipient
  • Invoice reference number against which debit note is issued
  • Date of creation of supplementary invoice
  • Description of the goods
  • Header description stating the document is a debit note
  • Verification of the document in the form of a digital signature
debit note

Steps to Create a Debit Note

The following steps guide a seller to create a debit note on ClearOne invoicing software:

  • Step 1 – Log on to ClearOne

Log on to https://one.clear.in/ and register using your mobile number.

  • Step 2 – Choose the type of bill

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.

  • Step 3 – Fill in the supplier and recipient details and the relevant dates

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.

  • Step 4 – Add the goods description and invoice reference number, and other details

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.

  • Step 5 – Add the mode of payment, signature and related details

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.

  • Step 6 – Generate the invoice

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:-

  • Convert invoice to debit note in a click– Fast forward your business with a feature to create a credit/debit note from invoice.
  • Flexibility Create, access, and share documents from the web and mobile on the go with ease.
  • Compliance – Documents created on the software are automatically in compliance with GST and NIC.

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.