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GST

Guide to Debit Note

debit note

What is a Debit Note?

Debit Note is a document that is used to make changes in the previously issued invoices. The changes may be required for various reasons like errors in the invoice, excess goods supplied, goods returned due to defects or other reasons.

A debit note can be treated as a credit note with the major stark difference being that a debit note is issued by the buyer, whereas the credit note is issued by the supplier. A debit note can be issued by the buyer to their seller to indicate or request a return of funds due to damaged, incorrect goods, purchase cancellations or any last-minute specified circumstances. 

In other words, a debit note is a request from the end of the buyer for a credit note from the supplier. It is a document that serves as evidence to support a purchase return in the accounting books of the buyer. 

Debit note transactions are mostly business to business (B2B) transactions and debit notes may also be referred to as debit memos. 

Example of a Debit Note

Let’s say for instance Master & Sons has purchased goods worth INR 2,00,000 from Kala Roopam Wholesalers and Retailers. Masters & Sons find out that 2% of the total goods purchased are damaged or defective, not fit to sell. At this point, Masters & Sons will issue a debit note in their books of accounts. 

The accounting entry for Master & Sons will be 

Purchase A/C… Dr  2,00,000 – 

To Kala Roopman Wholesalers and Retailers A/C… –  2,00,000  

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Since 2% of the goods are defective, the debit note entry will then be

Kala Roopman Wholesalers and Retailers A/C……Dr          4,000      –

To Purchase A/C          –        4,000

Purchase A/C…….Dr         4,000    –

To Purchase Return A/C     –      4,000

2% of INR 2,00,000 is INR 4,000

Doing this will create the right effect in ledgers, and as a result, the business will be able to enter a similar impact on the final accounts and balance sheet as well.

When to issue a Debit Note

A debit note is usually raised on two occasions. 

  • The first one being, there can be a change in the value of goods after the goods have been delivered by the supplier and the invoice has been raised. The reason for this could be a change in the goods due to damaged goods or returned products, bad quality of goods, etc. Whatever the reason may be, in this scenario the amount of the invoice reduces as a few goods are being returned. The debit note will provide a reason for the debit and the amount of money debited from the seller’s account. As mentioned in the example given above. It means that the purchaser has to then pay the supplier the amount minus the debit note amount. Thus, the debit note reduces liability for the purchaser.
  • The second situation is when the amount payable by the purchaser increases than the amount mentioned on the invoice raised. This situation could arise due to an incorrect value in the invoice, the purchaser buying more products at a later date etc. in such a situation, the seller then creates a debit note and issues it to the buyer. The purchaser now has an accounting liability to pay more than what is mentioned on the invoice. 

According to the Goods and Service Tax (GST) law, a debit note can be issued under two circumstances. That being: 

a. If the tax on the goods or services supplied changes post-issuance of invoice

b. If the taxable value of the goods or services supplied changes post-issuance of invoice

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Debit Note Format and the details to be covered 

A debit note format can be made on MS Excel, MS Word or even PDF. But with the rise in technology and ease of using phones and smartphones, one can even make a debit note on their phone. Irrespective of where you issue your debit note from there is a certain format that needs to be followed for the ease of transactions and accounting purposes. Also note: there are only a few minor tweaks in the format between a credit note and a debit note. 

One needs to ensure they follow the GST guidelines while issuing a debit note. The following are the details that need to be covered in a Debit Note: 

  • Header: Mention that the document is a debit note. 
  • Serial Number: Provide a different and unique serial number for each debit note. Also ensure the debit note is only in 16 characters and not more. The serial number can contain alphabets, numerical and special characters like dash, hyphen etc. 
  • Date: The date when the debit note is issued. 
  • Invoice Details: Add the invoice number and invoice details for reference and less confusion and the date of issue.
  • Supplier Details: Name, address and GST number of the supplier.
  • Contact Details: Add the contact details of the supplier and also their Goods and Service Tax Identification Number.
  • Amount: The taxable value of goods or services, rate of tax and the amount of the tax credited or, debited to the recipient.
  • Verification: Signature or digital signature of the supplier or their authorised representative
Image result for debit note under gst

How to create a Debit Note

While one can create a debit note manually, as mentioned above through the digitization of the internet and technology there are many available software’s online that do the job for you. All you need to do as an enterprise is to sign up and use one of them pre-loaded formats for a debit note. Flobiz can do the job for you in just a few clicks. 

Debit Note Under GST

There are certain scenarios when the supplier issues a debit note. These scenarios are:

1) When a tax invoice is issued, but the taxable value mentioned in the said invoice is lesser than the actual taxable value.

2) And when a tax invoice is issued and the tax that has been charged is less than the actual amount of tax that is to be paid.

In these cases, the supplier sends out a debit note to the buyer along with a supplementary invoice.

How to adjust tax liability in case of a Debit Note

In the new tax filing system, the biggest advantage of it is that debit note can be filed and integrated within the same table that declares outward supplies. No separate filing is required under the debit note criteria. There is no separate invoice declaration. 

Frequently Asked Questions

q. Can anyone issue a debit note?
a. A debit note can only be issued by the registered buyer under GST.

q. Is there a specific time when a debit note can be issued?
a. No. A debit note can be issued anytime in the same financial year as the accounting of the business. 

q. Do debit notes require separate tax filing?
a. No. Debit notes can be integrated with outward supplies and do not need a separate invoice declaration. 

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q. What is the difference between a debit and a credit note?
a. A debit note is issued by the buyer whereas a credit note is issued by the supplier 

q. Debit notes are also known as?
a. Many businesses also refer to debit notes as debit memos or debit receipts. 

q. Till when can a buyer or tax payer issue a debit note or a supplementary invoice?
a. A supplementary invoice should be raised within the first 30 days since the original invoice is sent to the buyer.

q. How frequently should you update your debit notes in the GST portal?
a. All debit and credit notes should be uploaded on the GSTIN Portal on a monthly basis. If your cumulative supplementary invoice value is not exceeding INR one lakh fifty thousand rupees, then, it can be done in the form of a consolidated invoice.

q. When should you declare your debit notes?
a. Debit notes should either be declared in the month of September of the following of the year from when the shipment was received along with the original invoice. Or on the date when you are filing the return for the said invoice. It should be done on which ever scenario comes earlier.

q. Is a debit note and a revised invoice the same?
a. No, Debit notes are sent when the buyer wants to return the goods to the seller and a revised invoice is raised when there is an issue with the invoice itself

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