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
- Every note must reference the original invoice.
- Notes are reported in your GSTR-1, so they flow into your returns.
- Credit notes that reduce tax have a time limit — broadly, up to the deadline for the annual return or 30 November following the financial year, whichever is earlier.
Billing software links notes to invoices and reports them for you, so the adjustment is captured correctly the first time.
Handle returns and corrections the right way
DAM issues linked credit and debit notes and keeps them return-ready — free Gold plan until 31 March 2027 when you register in the app.
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.