A Guide to Debit Notes under GST

Debit notes, also known as debit memos, are commonly used in business-to-business (B2B) transactions. It assists the buyer in keeping track of his debt obligations to the supplier for goods or services received. It also helps suppliers in correcting undervalued invoices.
 

What is a debit note?

A debit note is a type of commercial document that typically specifies any necessary adjustments to the amount of an invoice. Supplementary invoices are another term for debit notes. Debit note records must be kept for 72 months following the deadline for filing the annual return for the relevant year, per Section 36 of the CGST Act.

Process of issuing a debit note 

• A debit note issued by a buyer: e.g., Kapoor Enterprises purchases 10,000 whistles on credit from Bansal Ltd. at Rs.15 per whistle. Bansal fulfills the order, and an invoice is provided to Kapoor Enterprises at the delivery time. According to an inspection, four hundred thirty whistles are damaged, and 200 are defective. Kapoor Enterprises issues a debit note to Bansal Ltd. for the 630 whistles as payment. The debit note and the whistles’ return prove that Bansal Ltd. will have to deduct Rs.9,450 from the amount owed to Kapoor Enterprises (630 whistles x Rs.15).
• A debit note issued by a seller: e.g., Kapoor Enterprises purchases 10,000 whistles on credit from Bansal Ltd. at Rs.15 per whistle. Bansal delivers the package. The seller generates an invoice for the order provided to Kapoor Enterprises. Bansal Ltd., on the other hand, realizes that the rate per whistle in the invoice submitted to Kapoor Enterprises is Rs.14, understating the invoice by Rs.10,000. Bansal Ltd. then generates a debit note to be sent to Kapoor Enterprises, correcting the previously mentioned error.

Reasons to issue a debit note. 

A buyer issues a debit note to a seller if:

• The amount mentioned in the invoice is incorrect
• Receipt of defective/ damaged goods 
• The value mentioned is overstated 
• There is a cancellation of the purchase of goods/ services 
• The delivered goods or services are not up to the buyer’s standard 

A seller issues a debit note to the buyer if:

• The amount to be paid increases
• Understatement of the value of the invoice 
• If there is an addition to the good or service provided 

Debit note- notebook or ledger

• When a separate book is maintained containing two copies of the debit notes, one of which is used by the supplier, the remaining one serves as a record. This record of two copies of a debit note is classified as a debit notebook. 
• For an efficient tracking system, a credit note from a supplier is marked in the debit notebook against the debit note. 
• Because the supplier receives one copy of the debit note, the supplier may use it as a reference point when issuing the credit note.

Importance of debit notes under GST 

A supplier of goods and services is required by Section 34(3) of the CGST Act 2017 to issue a debit note when-

• Issuing a tax invoice for the provision of goods and services
• The taxes charged on the invoice are less than the taxable value of the supply made.
• The quantity of goods/services supplied exceeds the initial agreed-upon commitment stated on the invoice.

A debit note’s inclusion in the information for GSTR-1, the month in which the supply of goods occurred, is one of its fundamental roles under GST. The same information appears on Forms GSTR-2A and GSTR-2B for the recipient. Once the verification is complete, the recipient may approve it and include it in their GSTR-3B. Previously, when reporting a credit or debit note, the original invoice number had to be quoted on the GSTN portal in Form GSTR-1 and Form GSTR-6.

On the other hand, the change regarding the separation of debit notes from their original invoice led to the following:

• A specific debit note or credit note’s place of supply can be specified to determine the kind of supply (intrastate or interstate).
• When a debit or credit note is issued solely for the difference in tax rates, the note’s value can be shown as zero. Simply entering the tax amount will suffice.

The delinking amendment also impacted the treatment of Input Tax Credit (ITC) for debit notes. Before the change, the deadline for filing an ITC claim was based on the date of the invoice rather than the day the debit note was issued. However, due to the amendment, the time limit for claiming ITC is now calculated based on the debit note date.

For instance, if an invoice was issued in March 2019 and a debit note was issued in October 2019, the due date for Form GSTR-3B for October 2020 would be the final date for claiming ITC since the debit note was issued during the fiscal year 2019-2020.

Amendments to debit notes 

If a supplier’s invoice needs to be revised or changed, the change can be made through the GST portal. There are two cases involving amendments:

• Changes to debit/credit notes issued to registered individuals

The reporting requirements, in this case, must be entered in Form GSTR-1’s ‘Table 9C – Amended Debit/Credit Notes (Registered).’

• Changes to debit/credit notes issued to registered individuals

The reporting requirements, in this case, must be entered in Form GSTR-1’s ‘Table 9C – Amended Debit/Credit Notes (Unregistered).’

Time limit to issue a debit note. 

A debit note can generally be issued at any time. However, according to GST regulations, the debit note must be issued by the earliest of the following dates:

• Before or on September 30th of the fiscal year that comes after the one in which the goods and services were provided.

                                                OR

• On or before the deadline for filing the GSTR-9 (Annual Return) for the fiscal year

Tax liability, interest charges, and penalties will increase if the debit note is not issued within the allotted time.

Format and content of a debit note 

There is no prescribed legal format for a debit note. However, some fields are required to be present:

• Supplier’s name, address, contact information, and GSTIN
• The serial number of the debit note 
• The recipient’s name, address, contact information, and GSTIN
• The invoice reference number for which a debit note is issued
• Date the supplementary invoice was created
• Product Specification
• The document is a debit note, according to the header description.
• Document verification in the form of a digital signature