Debit note and credit note are documents used in Goods and Services Tax (GST) to record changes in transactions. A debit note is issued by a supplier when there is an increase in the amount payable by the recipient, while a credit note is issued when there is a decrease in the amount payable. They are important for adjusting tax liabilities and claiming input tax credits in case of returns or adjustments. Debit notes and credit notes should be issued within a specified time frame and should include details such as the reason for the note, the original invoice number, and the revised amount of tax payable. The detailed discussion of Debit and Credit Note are given below:
Debit Note in GST
As per Section 34(3) of the CGST Act, a registered person is required to issue one or more debit notes if the value declared in the invoice or invoices is less than the actual value of the goods or services provided or if the rate of GST or tax amount charged is at a lower rate than what is applicable for the goods or services supplied. The details of the debit note should be declared in the GST return for the month in which the debit note is issued, and the tax liability should be adjusted accordingly. The debit note should also include a supplementary invoice.
The issuance of a debit note makes the taxpayer liable to pay additional tax. A debit note is one of the documents specified in Rule 36(1) read with Section 16(2)(a) on the basis of which input tax credit can be claimed. However, Section 17(5) of the CGST Act restricts the entitlement to avail input tax credit in case tax has been paid under Section 74 or Section 129 or Section 130. Rule 53(3) of the CGST Rules provides that any invoice or debit note issued in pursuance of any tax payable under these sections shall prominently contain the words “INPUT TAX CREDIT NOT ADMISSIBLE”.
There is no time limit set for the issuance of a debit note under Section 34, as the government does not want to restrict a registered person from paying incremental tax. The CGST (Amendment) Act 2018 has amended Section 34 to allow for the issuance of a single debit note linked to more than one invoice. For example, if the taxable value in Invoice nos. 355 and 356 have been shown as 10000 and 5000, respectively, a single debit note can be raised for INR 15000, but invoice numbers 355 and 356 should be mentioned in the debit note.
In conclusion, the issuance of a debit note is an essential aspect of the GST regime, as it helps to correct errors in invoices and ensures that the correct amount of tax is paid. A debit note can be issued if the value declared in the invoice is less than the actual value of the goods or services provided, or if the rate of GST or tax amount charged is at a lower rate than what is applicable for the goods or services supplied. However, input tax credit cannot be claimed for tax paid under Section 74, Section 129, or Section 130, and any invoice or debit note issued in pursuance of these sections should prominently contain the words “INPUT TAX CREDIT NOT ADMISSIBLE”. The government has not set a time limit for the issuance of a debit note, and a single debit note can be linked to more than one invoice.
Credit Note in GST
Section 34(1) of the CGST Act mandates the issuance of a credit note by a registered person in case an invoice has been issued for the supply of goods or services or both, and the value or rate of GST charged is more than the actual value or applicable rate. Additionally, credit notes must be issued if the quantity received by the recipient is less than what is mentioned in the invoice, if the goods supplied are returned, or if there is a deficiency in the supply of goods or services.
It is important to note that the reduction in value should be within the permissible parameters of section 15 of the CGST Act. According to section 15(3), a reduction in value can only be made in the form of a discount in two scenarios. Firstly, if the discount has been agreed upon before or at the time of the supply and is specifically linked to relevant invoices. Secondly, if the recipient of the supply has issued a credit note for the same and has reduced the value of the supply.
In case of issuance of a credit note, the liability of the taxpayer to pay tax on outward supply reduces, and the corresponding input tax credit (ITC) of the recipient of the supply also gets reduced.
Section 34(2) stipulates that any registered person who issues a credit note must declare the details of such credit note in the GST return or statement furnished up to 30th November following the end of the financial year in which such supply was made or the date of furnishing of Annual Return, whichever is earlier. The tax liability shall be adjusted in the prescribed manner.
The CGST (Amendment) Act 2018 has amended section 34, enabling the issue of a single credit note linked to more than one invoice. For example, if the taxable value in Invoice no 556 and 557 have been excessively shown by 10000 and 5000 respectively, a single credit note can be raised for INR 15000, but invoice numbers 556 and 557 shall be mentioned in the credit note.
It is imperative for registered persons to comply with the provisions of section 34 and issue credit notes wherever necessary to avoid any discrepancies in the value of supplies made. The proper declaration of details of credit notes in returns or statements is crucial to ensure accurate adjustment of tax liabilities. Additionally, the amendments made to section 34 have made the process of issuing credit notes more streamlined and convenient, enabling the issuance of a single credit note linked to multiple invoices.
