GST

All About Debit Notes

A debit note or memo is a document commonly used in Business-to-Business (B2B) transactions. A debit note is used to keep a record of the debt obligations of a buyer towards the supplier of goods or services provided. Further, it helps the supplier to rectify undervalued invoices. A debit note is a financial and commercial document which contains information regarding any adjustments made to a particular invoice amount. Debit notes can be considered supplementary invoices. Section 36 of the CGST Act 2017 states that the records on debit notes must be kept from the due date of furnishing the annual return for a particular year until the expiry of 72 months, i.e., six years.

Process of Issuing a Debit Note

Scenario 1: By a Buyer

X Enterprises makes a credit purchase of 10,000 whistles from Y Ltd. at INR 15 per whistle. Y Ltd. delivers the order, and an invoice is given in return to X Enterprises at delivery time. On inspection, it was found that 430 whistles were damaged and 200 whistles were defective. X Enterprises created a debit note in favour of Y Ltd. with the return of 630 whistles. The debit note and the return of whistles indicate that Y Ltd. will have to debit the amount due from X Enterprises by INR 9,450.

Scenario 2: By a Seller

X Enterprises purchases on credit from Y Ltd. 10,000 whistles at INR 15 per whistle. Y Ltd. makes the delivery, and the seller issues an invoice for the order given to X Enterprises upon delivery. However, Y Ltd. realizes that the rate per whistle is INR 14 in the invoice submitted to X Enterprises, thus understating the invoice by Rs. 10,000. X Ltd then creates a debit note to be sent to X Enterprises, thus rectifying the error.

Reasons for the Issue of a Debit Note

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

1. The incorrect amount stated in the invoice
2. Receipt of defective or damaged goods
3. Overstatement of the value of the invoice
4. Cancellation of the purchase of a product or service
5. When the quality of goods is up to the buyer’s expectation

A debit note is issued to a buyer to the seller for the below-stated reasons:

1. Increase in the amount payable to the seller
2. Understatement of the value of the invoices
3. Addition made to the order of product or service

Debit Note Book or Ledger

A debit notebook is a separately maintained ledger book. Debit not is maintained in duplicate, out of which one is given to the supplier and the other remains in the debit notebook as a record. On receiving the credit note, it is marked off against the debit notebook, thus enabling a system of efficient tracking and balancing. The supplier may use the debit note as a reference while issuing the credit note.

Importance of Debit Note under GST Law

Section 34 (3) of the CGST Act, 2017 states that a supplier of goods and services issues a debit note at the time of:

1. Issue of a tax invoice on the supply of services and goods
2. Taxes charged are lower than the actual taxable value of the supply made
3. Goods and services supplied are in excess quantity compared to the initially agreed commitment per the invoice.

A critical aspect of debit notes is that it forms a part of the details concerning GSTR-1 of the month in which the supply of goods was made. The same details also form a part of GSTR-2A and GSTR-2B for the recipient. When the verification is done, the recipient may approve it and submit it as a part of the GSTR-3B. Before reporting a credit or debit note, the original invoice number must be mandatorily quoted on the GSTIN portal in Form GSTR-1 and Form GSTR-6. However, the amendment delinking of the debit notes from the original invoice resulted in the following:

1. Identification of the supply type and the place of supply can be provided for a particular debit note or a credit note.
2. Where a debit note or credit note is issued only for the difference in tax rate, and the note’s value is shown as zero. Entering the tax amount will be sufficient.

The amendment relating to the delinking of the debit note has affected the treatment of Input Tax Credit (ITC). Before the amendment, the period for availing ITC was connected with the date of invoice and not to the date of issue of the debit note; however,  after the amendment, the time limit for availing ITC is computed based on the date of the debit note.

Time Limit to Issue a Debit Note

In general, there is no time limit for the issuance of a debit note, but as per the GST Law¹, a debt must be issued at the earliest of the following dates:

1. The goods and services were supplied on or before September 30 in a fiscal year succeeding the year.
2. The taxpayer files the GSTR-9 (Annual Return) for the financial year on or before the date.

Failure to issue the debit note within the prescribed time will attract increased tax liability, interest levy and penalties.

Contents of a Debit Note

Some of the mandatory contents of a Debit Note are as follows:

1. Name, address, contact details and GSTIN of the supplier
2. Name, address, contact details and GSTIN of the recipient
3. Serial number of the debit note
4. Invoice reference number based on which the debit note is issued
5. Date of creation of supplementary invoice
6. Description of the goods
7. Header description stating the document is a debit note
8. Verification of the record in the form of a digital signature

Conclusion

A debit note is a commercial document containing information about any adjustments made to a particular invoice amount. The purpose of a debit note is to keep track of the debt obligation towards the supplier of goods or services and to rectify any undervalued invoices.

FAQs

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1. https://services.gst.gov.in/services/gstlaw/gstlawlist