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.
Difference between debit note Vs credit note
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.
What is a debit note?
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.
Types of debit note
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.
What is a credit note?
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.
Types of 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.
How do credit notes and debit notes differ in accounting?
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.
How are credit notes and debit notes used in business transactions?
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.
What are the implications of issuing a credit note versus a debit note?
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.
What does a debit note represent?
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.
What scenarios commonly involve the issuance of debit notes?
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.
In what situations is a credit note typically used?
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.
What is the accounting entry associated with a debit note?
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.
How does a credit note impact the outstanding balance owed by the buyer?
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.
Are physical debit and credit notes Necessary?
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.
What if I disagree with a debit note?
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.
Are there deadlines for issuing debit and credit notes?
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.
How can I keep track of debit and credit notes?
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.
17 June 2025
5 mins read
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