Different kinds of documents are issued under various circumstances whenever a transaction involves supply of goods or services. These documents include tax invoice, debit note, credit note and bill of supply. This article, however, seeks to explain in detail debit note under GST. Furthermore, we shall also see what is the impact of issuance of debit note on output tax liability.
Debit Note in Accounting
A debit note in accounting means a document issued by the buyer of goods or services to the seller. This document notifies that the seller’s account needs to be debited given goods are returned by buyer to the seller. Furthermore, this document informs the seller about the amount and quantity of goods returned .Thus, such a note is an intimation to the seller for returning money to the buyer.
Typically, a debit note is raised for accounting purposes. However, such a debit note has no relevance under GST. For the purpose of GST, both debit and credit note need to be issued by the supplier of goods or services. In case the supplier fails to show the details of such documents in the valid returns, the recipient needs to declare the same in his valid returns. Furthermore, the supplier needs to accept such documents in order to bring about changes in his valid returns.
What is Debit Note in GST?
Debit note in GST is defined under section 34(3) of the CGST act 2017. It is a document that a supplier of goods or services issues to the recipient where –
- a tax invoice has been issued for any supply of goods or services or both and:
- Taxable value or tax charged in the invoice is less than the taxable value or tax payable in respect of such supply
- Goods or services supplied are found to be more than the quantity committed under original invoice
In the event of any of the above cases, the registered supplier of goods or services may issue a debit note to the recipient.
Debit Note Example
Kapoor Pvt Ltd supplied goods worth Rs. 20,000 units @ Rs. 20 per unit to M/s Sharma Traders on April 1,2017.The GST charged on such a supply is 5% which is Rs. 20,000. However, on selling the goods, Kapoor Pvt Ltd realizes that the price charged for each unit was Rs 22 and not Rs. 20. As is evident, the amount charged in the tax invoice was less than the amount of goods delivered. Thus, Kapoor Pvt Ltd issued a debit note in favor of M/s Sharma Ltd.
Such a debit note would notify M/s Sharma traders that a debit needs to be made in their own account. In other words, debit note is an intimation to M/s Sharma Traders that it still owes Kapoor Pvt Ltd an amount equal to Rs. 40,000 ( Rs. 2 x 20,000) and GST of Rs. 2000 under original invoice.
When Debit Note is Issued?
When a registered person supplies goods or services, he needs to necessarily issue a tax invoice. Upon issuing the tax invoice, however, a registered supplier is required to issue a debit note to the recipient in the event of any of the following cases:
- the supplier charges value of goods or services in the invoice that is less than the actual value of such goods or services
- supplier charges a lower rate of tax than what is applicable on goods or services supplied
- the quantity of goods or services received by the recipient is more than what has been declared in the original tax invoice
- any other reasons
Furthermore, such a note also includes the supplementary invoice.
Debit Note Format
There is no prescribed format to prepare a debit note. However, a debit note issued by a supplier to the recipient must have the following particulars:
- name, address and Goods and Services Tax Identification Number (GSTIN) of the supplier
- nature of the document (credit note or debit note)
- a consecutive serial number that is unique and should :
- not exceed 16 characters,
- be in one or multiple series,
- contain alphabets, numerals or special characters such as hyphen, dash etc
- any combination thereof
- date of issue
- name, address and GSTIN of the recipient, if registered
- in case the recipient is unregistered, then name, address of the recipient and address of delivery along with name of state and its code needs to be given
- serial number and date of the corresponding tax invoice or bill of supply as the case may be
- value of taxable supply of goods or services, rate of tax and the amount of tax debited to the recipient
- signature or digital signature of the supplier or any of his authorized representatives
How to Adjust Tax Liability in case of Debit Note?
Time When Debit Note is Issued
Unlike credit note, there is no time limit for the issuance of a debit note.
Output Tax Liability of Supplier
A debit note issued by the supplier increases the output tax liability of the supplier. This is on account of the value of taxable goods charged in the invoice to be less than the actual delivery of goods or services. Such a supply would demand supplementary invoice to be raised for the amount of goods not charged originally. Thus, the supplier needs to showcase the document in the return for the month in which such a debit note or supplementary invoice is issued.
Record of Debit Note
Both the supplier as well as recipient need to maintain the records of debit notes or supplementary invoice for up to a period of 72 months. Such a period begins from the due date of furnishing of annual return for the year that pertains to issuance of such documents. However, where these documents are maintained manually, a record should be maintained. Such a record needs to be maintained at every related place of business mentioned in the certificate of registration. Furthermore, where such documents are maintained digitally, it shall be accessible to every related place of business.
Thus, debit note or supplementary invoice is a document issued to enhance the value of goods or services in the original tax invoice. This method is easy as well as legally sound to revise the taxable value in the original tax invoice. Thus, a supplier can easily enhance the outward tax liability in his returns without undertaking any other strenuous process by issuing a debit note.