Tata Capital > Blog > Loan for Business > Understanding Debit Note and Credit Note in GST
17 June 2025
5 mins read
1525
Debit note and credit note in GST are vital documents for adjusting tax invoices. A debit note informs you regarding any outstanding dues, thereby increasing tax liability. A credit note, on the other hand, communicates the amount of money that is owed to you for returned goods or service corrections, reducing the outstanding balance on an invoice as well as tax liability.
The exact distinction between debit note and credit note can be confusing within the vast GST framework. This article aims to clarify what is debit note and credit note and highlight the differences between them.
| Aspect | Debit note | Credit note |
| Definition | A document issued by a seller to the buyer. It informs the buyer of the amount they are owed. | This document is issued to a buyer, by the seller to inform them about the amount credited to their account. |
| Purpose | To acknowledge an increase in the amount to be paid by the buyer. | To acknowledge a decrease in the amount to be paid by the buyer. |
| Issuer | Seller or service provider | Can be issued by both the buyer and the seller. Usually issued by the seller; however, the buyer can issue a credit note for returns, etc. |
| Occurrence | Underbilling, extra charges, or outstanding payments. | Returns, price adjustments, damaged goods, or invoice adjustments. |
| Effect on the amount owed | Increases the amount owed by the buyer | Reduces the amount owed by the buyer. |
| Use in accounting | Indicates an increase in accounts receivable. | Indicates a decrease in accounts receivable. |
| Examples | Adjusting an undercharged invoice.Adding late payment charges.Levying additional charges. | Processing goods return or service correction.Correcting overcharged amounts.Adjusting for damaged items. |
| Financial impact | Increases the amount of debt owed by the buyer. | Reduces the amount of debt owed by the buyer. |
| Accounting entry | Debits the buyer’s account. | Credits the buyer’s account or sometimes debits the seller’s account. |
A debit note is an official financial document issued by a seller to a buyer, informing them of any outstanding amount owed for a purchase. A debit note is not restricted to business-to-business transactions. It is also utilized in business and customer transactions.
To understand debit notes, consider the following analogy:
Suppose you have a cell phone plan with a fixed data usage limit. If you exceed the data limit, the service provider will send you an adjusted bill showing the additional charges incurred. This adjusted bill is a debit note from the service provider to you, indicating the extra amount you are owed.
The different types of debit notes are given in the table below.
| Type of debit note | Description |
| Tax debit note | Informs the taxpayer regarding discrepancies in taxes owed and requests payment. |
| Purchase debit note | Requests a purchase price reduction due to issues such as damaged goods. |
| Interest debit note | Notifies the borrower regarding the accumulated interest on loans, requesting payment. |
| Adjustment debit note | Adjusts invoices or financial documents to account for previous errors and discrepancies. |
| Service debit note | Adjusts for service charges, rectifies billing errors, or accounts for additional services. |
| Returned cheque debit note | Informs about the bounced cheque amount deduction from the customer’s account. |
A credit note is an official financial document issued by the seller to the buyer. In this document, the seller informs the buyer of the specific amount credited or refunded to their account.
Let’s take a real-world example to understand credit notes better:
Suppose you visit an appliance store and select a coffee maker. After getting home, you realize that the coffee maker’s filter is broken. When you return the item to the store, the store issues you a return note that entitles you to obtain a refund of the entire amount or choose a different coffee maker of equal value. This return note is exactly like a credit note.
The different types of credit notes are given in the table below.
| Type of credit note | Description |
| Tax credit note | Informs the taxpayer regarding discrepancies in taxes owed and initiates credit. |
| Purchase credit note | Requested by buyer to reduce purchase price due to issues such as damaged goods. |
| Interest credit note | Informs the borrower regarding the accumulated interest on loans, requesting payment. |
| Adjustment credit note | Adjusts invoices or financial documents to account for previous errors and discrepancies. |
| Service credit note | Adjusts for service charges, rectifies billing errors, or accounts for additional services. |
| Returned cheque credit note | Issued by banks when a cheque bounces. |
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Understanding debit note and credit note meaning can be challenging within the vast and complicated GST framework. While a debit note informs a buyer regarding the amount they owe, a credit note informs them about the amount they’re owed.
Understanding difference between debit note and credit note is essential as a business typically deals with both. With the information given in this article, you can clarify the differences between credit note and debit note in GST with ease.
In accounting, a credit note and a debit note serve opposite functions. A credit note informs the buyer of the amount the seller owes them for damaged goods or product returns. A debit note informs the buyer of the amount they owe the seller due to additional charges or underbilling.
Credit notes and debit notes are utilized in business transactions to adjust the amount payable or receivable. A debit note requests an increase in the amount due. A credit note, on the other hand, requests a decrease in the amount owed.
The financial implications of issuing a debit note and a credit note are the opposite. A credit note informs the buyer of the amount the seller owes them for damaged goods or product returns. A debit note informs the buyer of the amount they owe the seller due to additional charges or underbilling.
A debit note is an official financial document issued by a seller to a buyer, informing them of any outstanding amount owed for a purchase. This could be due to various reasons, such as underbilling, extra charges, or outstanding payments.
A debit note is a critical document that is issued to a buyer, by a seller informing them of any outstanding amount owed for a purchase and requesting payment. Common scenarios involving the issuance of debit notes include adjusting an undercharged invoice, adding late payment charges, and levying additional charges.
A credit note is an official financial document issued by the seller to the buyer. Typical situations where a credit note is used include processing returns of goods, correcting overcharged amounts, or adjusting for damaged items.
A debit note is an official financial document issued by a seller to a buyer, informing them of any outstanding amount owed for a purchase and requesting payment. The accounting entry related to a debit note is debiting the buyer's account.
A credit note reduces the outstanding balance owed by the buyer. A credit note is used to reduce or offset the amount owed by the buyer, leading to a refund or reduced liability. The adjustment is made through a credit entry in the buyer's account.
No, physical debit and credit notes are not necessary. With the advancement of technology, digital debit and credit notes are becoming increasingly common. The only requirement is that the notes should provide a clear and well-documented record of any adjustments made.
If you want to disagree with a debit note provided to you by a seller, you must inform the seller immediately of your requirements. Further, you must be ready with supporting documentation and proof to substantiate the reason for your disagreement.
There are no official deadlines for issuing debit and credit notes. However, it is a good idea to follow self-prescribed deadlines when issuing Debit or Credit Notes for clarity and documentation purposes.
To keep track of debit and credit notes, you must have a proper filing and tracking system. Keeping accurate track of debit and credit notes is essential for proper financial reconciliation and record-keeping.
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