What is a Debit Note?

A Debit Note or Credit Note is issued from supplier to receiver of goods and services when the supplied goods are not up to the mark, extra goods being sent, the returning of the goods or revision in the previously issued invoice value needs to be done. The sole purpose of a debit note is to work as a piece of evidence for the buyer. Debit notes are also known as Debit memos and are mostly used in B2B (Business to Business) transactions.

There are particularly two situations where debit or credit notes can be issued –

• A decrement in the amount payable to the seller by the buyer. This can happen due to several reasons including the product not being up to the mark, the returning of the goods, etc.
• The increase of the amount payable to the seller by the buyer. This can also happen due to several reasons including the sudden increase of the commodity, extra goods being delivered, the goods already delivered have incorrect value and as such.

Delinking of a Debit Note

The official portal of Goods and Service Tax Network has already activated the process through which a debit or credit note can be delinked from its authentic GST invoice. GSTN has authorised the taxpayers under GST in GSTR-1 the intimation of integrated credit or debit notes. With this change in the system, the taxpayers now do not need to reveal the original date and invoice number when reporting the debit or credit notes in GSTR1.

Consequently, it has removed the burden placed on taxpayers by the official GST portal to disclose all the information which ultimately leads to further complications. The businesses are also breathing a sigh of relief because they do not have to confront actual intricacies while issuing a single debit or credit memo in case of multifarious invoices where marking of one credit note as opposed to each invoice is unfeasible.

For example, a taxpayer, XYZ Limited has presented a total of twenty invoices to the customer IJK Limited between February 2021 to June 2021. Due to a price difference of the commodity, XYZ Limited has to raise a Credit note in September 2021. In this case, XYZ Limited have to provide one credit note for all the twenty invoices whereas GSTN will not ask for the authentic invoice credentials in GSTR-1. Correspondingly, debit or credit memos can be raised against different invoices.

CGS Act, Section 34, 2017 concerns credit or debit notes raised by taxpayers following the GST rule. Before the modification of Section 34, the caveat compelled an enlisted individual to raise extra credit or debit memos concerning the respective tax invoice issued under GST in a fiscal year.

Amendments were passed vide CGST amendment Act, 2018, effective from 1st February 2019, into Section 34(3) and 34(1) which allowed usage of more than one debit or credit memos with several tax invoices issued during a fiscal year. Nevertheless, the modification was live from 14th September 2020 on the GST official site after delaying more than a year plus a half.

Other Important Aspects

It is also important to mention the other two arrangements of the CGST Act. Essentially, vide Finance Act 2020 Section 16 (4) of the CGST Act was modified, where debit notes were isolated from their actual invoices issued date against tax invoices. There is also a deadline for suffragists in a fiscal year to profess the Input Tax Credit (ITC) on invoices and debit or credit memos as well as to return files for September of the same year or the actual date of providing the yearly returns for the same financial year mentioned in Section 16(4).

The second part of the CGST Act, Section 15(3) carries on with the highlighting of the legitimate culpability of the suffragist to retain a record of the authentic invoice regarding those debit notes which has been discharged for any cut price. Under this ruling, an individual can decrease the quota of cut-price availed through a debit note, if the circumstances satisfy the utility of supply. This kind of cut-price needs to be decided on a previous agreement and specially attached to those particular invoices. Else, the failure to produce the particular attributes before the tax official can inflict the individual with trouble and the person will have to pay GST on that cut off amount. The bona fide invoice must be kept under any circumstances possible to avoid conflict.

Even if the delinking of the credit and debit invoices are now effective, it is still advised to the taxpayers to preserve the original invoice regarding the debit or credit notes on their accounting records. It helps to keep an easy connection for the future as well as a trouble-free verification at the time of audits.