taxInvoice.appCredit note vs debit note
Short answer: A credit note reduces the amount owed on an earlier invoice, for example after a return, a discount or an overcharge. A debit note (or supplementary invoice) increases it, for example after an undercharge. Under GST in India, both must refer to the original invoice and are reported in your returns; the credit note deadline is tied to the financial year.
| Credit note | Debit note | |
|---|---|---|
| Effect | Reduces what the customer owes | Increases what the customer owes |
| Typical reasons | Returned goods, post-sale discount, overcharge, cancelled service | Undercharge, extra quantity supplied, price increase after invoicing |
| Issued by (usual practice) | Seller | Seller (supplementary invoice); buyers also use “debit note” for returns |
| Tax effect | Reduces output tax | Increases output tax |
Example
You invoiced Rs. 10,000 + 18% GST = Rs. 11,800. The customer returns 20% of the goods.
- Credit note: taxable value Rs. 2,000, GST Rs. 360, total Rs. 2,360.
- New amount owed: Rs. 9,440.
What a credit or debit note should show
- Title: “Credit note” or “Debit note”
- Its own number and date
- Original invoice number and date
- Reason for the adjustment
- Value, tax rate and tax amount
- Supplier and recipient details (with GSTIN in India)
Check your local deadlines: under GST, credit notes must be issued within the time limit linked to the financial year of the original supply.
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Frequently asked questions
Can I just edit the original invoice instead?
No. Once an invoice has been issued, correct it with a credit or debit note so your records and tax returns stay consistent.
Does a credit note need its own number?
Yes. Use a separate sequence, for example CN-0001, and reference the original invoice number and date.