Mistakes and changes happen after billing: a customer returns goods, you undercharged, or you gave a post-sale discount. Under GST you do not delete or overwrite the original invoice. Instead you issue a credit note or a debit note to adjust it. Getting this right keeps your returns clean and your tax correct.
The simplest way to remember it: a credit note reduces the amount the customer owes; a debit note increases it. In GST, the supplier issues both.
What is a credit note?
A supplier issues a credit note when the value or tax on the original invoice needs to go down. Common reasons:
- The customer returned goods
- You overcharged or applied the wrong rate
- You gave a discount after the invoice
- Goods were deficient or rejected
A credit note reduces your output tax liability — you effectively give back the extra tax you had charged.
What is a debit note?
A supplier issues a debit note when the value or tax needs to go up. Common reasons:
- You undercharged on the original invoice
- You supplied extra goods not billed earlier
- The tax rate applied was too low
A debit note increases your output tax liability — you are collecting the additional tax that was missed.
Debit note vs credit note at a glance
| Credit note | Debit note | |
|---|---|---|
| Effect on invoice value | Decreases | Increases |
| Issued by (under GST) | Supplier | Supplier |
| Effect on tax | Reduces output tax | Increases output tax |
| Typical trigger | Return, discount, overcharge | Undercharge, extra supply |
A quick example
You sell goods for ₹10,000 + 18% GST = ₹11,800. The customer returns a quarter of the order. You issue a credit note for ₹2,500 + ₹450 GST = ₹2,950, reducing both what they owe and the tax you must pay.
Now suppose instead you had mistakenly billed ₹8,000 instead of ₹10,000. You issue a debit note for the ₹2,000 shortfall + ₹360 GST to correct it.
Rules to keep in mind (GST Section 34)
- Reference original invoice: Every credit or debit note must cite the original invoice serial number and date to maintain a traceable audit trail.
- Reported in GSTR-1 (Table 9B): Notes issued to registered businesses (B2B) must be reported under Table 9B of GSTR-1 so your customer's GSTR-2B automatically reflects the tax adjustment.
- Credit note deadline (Section 34(2)): To adjust output tax, a credit note must be declared in GSTR-1 no later than 30th November following the end of the financial year (or the date of filing the annual GSTR-9 return, whichever is earlier).
- GST vs. Commercial notes: If a return or discount happens after the 30th November statutory deadline, you can still issue a financial or commercial credit note to adjust party ledgers, but you cannot reclaim the GST component from the government.
- Debit notes have no statutory expiry (Section 34(3)): You can issue a debit note whenever an undercharge is discovered, and output tax must be paid in that tax period.
Modern billing apps like DAM automatically link notes to invoices and prepare GSTR-1 summaries, ensuring your books balance without manual calculation mistakes.
Watch: create a credit or debit note in DAM
In the DAM app a credit note is raised against a sale (your customer returned goods), and a debit note is raised against a purchase (you returned goods to your supplier). Two short tutorials:
How to create a credit or debit note in DAM
Open the DAM app, tap the search bar at the top (or press ⌘K on web) and type credit note or debit note. Pick New Credit Note or New Debit Note from the results.
- On the note screen, confirm the type with the Credit Note / Debit Note toggle.
- Choose a reason (return, discount, rate correction, undercharge, and so on). For a return, pick Against Sale (credit) or Against Purchase (debit).
- Tap Fetch from invoice and search the original bill by number or party. Linking it keeps the note tied to that invoice for your returns.
- Adjust the items and quantities being returned or corrected. DAM recalculates the taxable value and GST for you.
- Tap Save Credit Note / Save Debit Note. The note opens as a PDF straight away.
- Tap Print / PDF to share it with your customer or supplier on WhatsApp. The note flows into your GSTR-1 automatically.
Handle returns and corrections the right way
New accounts get one month of Gold free. After the trial, plans start at ₹49/month. Check current prices and limits in DAM.
Download DAM FreeFrequently asked questions
What is the difference between a debit note and a credit note?
A credit note reduces the value or tax on an invoice (for returns, discounts or overcharges), while a debit note increases it (for undercharges or extra supply). Under GST the supplier issues both.
Who issues a credit note under GST?
The supplier issues the credit note. Although a buyer may raise a commercial debit note in their own books, under GST it is the supplier who issues the tax credit or debit note that adjusts the liability.
Is there a time limit to issue a credit note?
Yes. A credit note that reduces tax must generally be issued by the deadline for the annual return or 30 November following the financial year of the original invoice, whichever is earlier.