It is mandatory for a supplier of goods or services or both to issue a tax invoice. There might be situations where an error is made in issuing the invoice or certain other errors might crop up with the quantity or quality of goods or services delivered. To regularize such situations, the supplier is allowed to issue a debit note or credit note, whatever the case warrants.
Situations in which debit note is issued
- The supplier has mistakenly valued the goods or services less than the actual amount
- The supplier instead of declaring the correct tax rate which is applicable to the goods or services provided, has declared a lower tax rate in the invoice
- The quantity provided to the receiver is more than what has been declared in the tax invoice
- Any other similar situation
Thus, when an invoice is issued and it is found that the taxable value or tax charged is less than the actual taxable value or tax to be paid with regards to the supply of goods or services, then the supplier shall issue to the recipient a debit note entailing the prescribed particulars. This creates an additional tax liability. The debit note also includes a supplementary invoice. In respect of payment and returns, a debit note or supplementary note is treated as a regular tax invoice.
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Situations in which credit note is issued
- The supplier has mistakenly valued the goods or services more than the actual amount
- The supplier instead of declaring the correct tax rate which is applicable to the goods or services provided, has declared a higher tax rate in the invoice
- The quantity provided to the receiver is less than what has been declared in the tax invoice
- The quality of the goods or services supplied is not to the satisfaction of the receiver, resulting in a partial or total reimbursement on the invoice value
- Any other similar situation
Thus, when an invoice is issued and it is found that the taxable value or tax charged exceeds the actual taxable value or tax to be paid with regards to the supply of goods or services, or the goods are returned back to the supplier, or the goods and services are deficient or inadequate in terms of quality, then the supplier shall issue to the recipient a credit note entailing the prescribed particulars. The person issuing the credit note shall declare the details in the return for the month in which the said credit note was issued but not after September following the end of the financial year in which the supply was made, or the date of furnishing of the relevant annual return, whichever is earlier. Therefore, the tax liability cannot be reduced if the credit note has been issued after September. Further, the output tax liability will be reduced only when a credit note is issued and it is matched. The details are to be matched
- with the corresponding reduction in the claim for an input tax credit by the recipient
- for duplication of claims to reduce the output tax liability
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Format of the note
As such, there is no prescribed format, but there are certain mandatory particulars to be contained in the debit or credit note such as –
- name, address and GST Identification Number of the supplier
- nature of document
- a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters hyphen and slash, and any combination thereof, unique for a financial year
- date of issue
- name, address and GST Identification Number or Unique Identity Number, if registered, of the recipient/receiver
- if the recipient is unregistered, then name, address of the recipient along with an address of delivery, name of State and its code
- serial number and date of the corresponding tax invoice
- value of taxable supply of goods or services, rate of tax and the amount of the tax debited to the recipient
- signature of the supplier
The records of the credit/debit note have to be retained until the end of seventy-two months from the due date of furnishing of annual return of the related year. In cases where the accounts and documents are maintained manually, then it should be kept in all places of business mentioned in the certificate of registration. Otherwise, in cases where they are maintained digitally, they should be accessible at every related place of business.
The issuance of credit and debit notes are a convenient legal method that helps the supplier in avoiding a tedious process to rectify the errors in the original tax invoice. A debit note helps in enhancing the value of goods and services stated in the original tax voice, whereas a credit note is used to amend or revise the original tax invoice in order to decrease the tax liability.