Even after you’ve issued a tax invoice, the amount can change — goods get returned, a price was entered wrong, or extra items were supplied. Instead of editing the original invoice (which you shouldn’t do), GST uses credit notes and debit notes to adjust it. This guide explains both, simply.
What is a credit note?
A credit note is issued to reduce the value of an already-issued tax invoice. You raise one when:
- Goods are returned by the customer.
- The customer was overcharged (taxable value or tax was too high).
- The goods or services were deficient in some way.
A credit note reduces your output GST liability — you owe the government less tax for that sale.
What is a debit note?
A debit note is issued to increase the value of an already-issued tax invoice. You raise one when:
- The customer was undercharged (taxable value or tax was too low).
- You supplied extra goods not on the original invoice.
- The price increased after the invoice.
A debit note increases your output GST liability — you owe the government more tax for that sale.
The key point everyone gets wrong
Under GST, the seller issues both the credit note and the debit note — against their own original tax invoice. A buyer might raise a “debit note” in their own books as a commercial document, but the GST credit/debit note is always issued by the supplier.
Credit note vs debit note: side by side
| Aspect | Credit Note | Debit Note |
|---|---|---|
| Effect on invoice | Decreases the value | Increases the value |
| Issued by | Seller / supplier | Seller / supplier |
| Typical reason | Return, overcharge, discount, deficiency | Undercharge, extra supply, price rise |
| Seller’s GST liability | Reduces | Increases |
| Buyer’s input tax credit | Buyer reverses some ITC | Buyer can claim more ITC |
A worked example
You sold goods for ₹10,000 + 18% GST = ₹11,800. Two things could happen later:
| Situation | Note to issue | Adjustment |
|---|---|---|
| Customer returns ₹2,000 of goods | Credit note | −₹2,000 value, −₹360 GST |
| You undercharged by ₹2,000 | Debit note | +₹2,000 value, +₹360 GST |
In the first case your output GST drops by ₹360; in the second it rises by ₹360. Either way, the note is linked to the original invoice and reported in your GST returns.
How they affect input tax credit
Because these notes change the tax, they also change the buyer’s input tax credit:
- Credit note → the buyer reverses the extra ITC they’d claimed.
- Debit note → the buyer can claim additional ITC.
This is why both notes must reference the original invoice and be reported correctly — so both sides stay matched.
Time limit for a credit note
A credit note affects your tax, so it can’t be raised indefinitely. It should be declared in your GST returns by 30 November following the end of that financial year, or the filing of the annual return, whichever is earlier. (A debit note has no such cut-off for issuing, but the buyer’s ITC on it follows the normal ITC time limit.)
Do it the easy way
You should never overwrite an issued invoice — the correct approach is a credit or debit note linked to it. In KhataBuddy, you can raise a credit or debit note against the original invoice in a few taps, and the GST adjustment flows through automatically. Try KhataBuddy free and keep your billing clean and compliant.
Related reading
- What Is a Tax Invoice? GST Invoice Format & Mandatory Fields
- Input Tax Credit (ITC) Explained
- Proforma Invoice vs Tax Invoice
- Work out the tax on any amount with the GST Calculator.