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Debit Note vs Credit Note: Differences, GST Rules and Examples
A credit note reduces the amount a customer owes you. A debit note increases it. In GST, both are issued by the supplier against an earlier tax invoice. In everyday accounting, though, a buyer also raises a "debit note" to tell a supplier that goods are being sent back, which is why the two terms confuse so many people.
Debit note vs credit note: quick comparison
| Credit note | Debit note | |
|---|---|---|
| Effect | Reduces the invoice value (or tax) | Increases the invoice value (or tax) |
| Typical reasons | Goods returned, post-sale discount, overcharge, short supply | Undercharge, extra items supplied, price increase agreed later |
| GST: issued by | The supplier (seller) | The supplier (seller) |
| Seller's books | Debit Sales Returns, credit the customer | Debit the customer, credit Sales |
| Buyer's books | Debit the supplier, credit Purchase Returns | Debit Purchases, credit the supplier |
What is a credit note?
A credit note is a document that cancels or reduces part of an invoice you already issued. Under Section 34 of the CGST Act, a supplier issues one when the taxable value or tax charged on the invoice is more than what was actually due, when goods are returned, or when the services are found deficient.
Example: You invoice a customer for 100 units at ₹500 plus 18% GST. The customer returns 10 damaged units. You issue a credit note for 10 × ₹500 = ₹5,000 plus ₹900 GST, reducing the customer's payable by ₹5,900.
What is a debit note?
Under GST, a debit note is issued by the supplier when the taxable value or tax on the original invoice was less than it should have been. For example, a price revision agreed after delivery, or extra units supplied that were not on the invoice.
Example: You invoiced 100 units at ₹500 but the agreed rate was ₹510. You issue a debit note for 100 × ₹10 = ₹1,000 plus ₹180 GST, so the customer now owes ₹1,180 more.
Why the buyer's "debit note" is a different thing
When a buyer returns goods, it is common to send the supplier a debit note. This is an accounting memo that says "we are debiting your account for these returned goods". It is not a GST document. The supplier then issues a GST credit note against the original invoice. So one purchase return normally produces two documents: the buyer's debit note and the supplier's credit note.
Purchase return example with journal entries
A buyer returns goods worth ₹10,000 plus ₹1,800 GST.
| Who | Entry | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Buyer | Supplier A/c | 11,800 | |
| Purchase Returns A/c | 10,000 | ||
| Input GST A/c | 1,800 | ||
| Seller | Sales Returns A/c | 10,000 | |
| Output GST A/c | 1,800 | ||
| Customer A/c | 11,800 |
For the full walk-through, see our guide to the purchase return journal entry.
What a GST credit or debit note must contain
- The words "Credit Note" or "Debit Note" and a unique serial number
- Date of issue
- Supplier name, address and GSTIN
- Recipient name, address and GSTIN (or state, if unregistered)
- The number and date of the original invoice it relates to
- The taxable value and the CGST, SGST or IGST amount being reduced or added
- Signature or digital signature of the supplier
Check the current CGST Rules for the exact list that applies to you, including any e-invoicing requirement if your turnover crosses the notified threshold.
Time limit and input tax credit
- Credit notes: the supplier can reduce output tax liability only if the credit note is issued and declared in the return no later than 30 November following the end of the financial year of the original supply, or the date of filing the annual return, whichever is earlier. Confirm the current wording of Section 34(2) before relying on a late credit note.
- Buyer's ITC: if a credit note reduces tax on a supply, the buyer must reduce the input tax credit claimed on it.
- Debit notes: the extra tax is payable by the supplier in the period the debit note is issued, and the buyer can claim ITC on it subject to the usual conditions.
Frequently asked questions
Is a purchase return a debit note or a credit note?
The buyer records it by debiting the supplier, which is why the buyer's memo is called a debit note. The supplier issues a credit note under GST to reduce the invoice.
Can a buyer issue a credit note under GST?
No. Section 34 lets only the supplier issue GST credit and debit notes. A buyer's debit note is an internal accounting or commercial document.
Does a credit note need GST?
Yes. If the original invoice charged GST, the credit note reverses the same proportion of tax, at the rate on the original invoice.
Can I create a credit note without an invoice?
A GST credit note must refer to the original tax invoice. If there is no invoice to refer to, you probably need a fresh invoice or a refund voucher instead.
Create the invoice first, then the note
Both notes start from an invoice. If you need one fast, use our free GST bill generator, and keep every invoice, return and adjustment in one place with myBooksAI, which posts the matching journal entries for you.