Credit Note and Debit Note Under GST: Rules and Examples

A credit note or debit note under GST is how you correct the value or tax of an invoice after it has been issued. Goods come back, prices are renegotiated, discounts are agreed, or a rate error is discovered. Section 34 of the CGST Act sets out when these documents can be issued, what they must contain and by when. A correctly issued credit note reduces your output tax; a wrongly issued one can be disallowed and leave you paying tax on income you never earned. This guide explains the rules, time limits, discount conditions, worked examples and reporting.

When to issue a credit note

A supplier issues a credit note when, after the tax invoice:

The taxable value or tax charged is found to be higher than payable.
Goods supplied are returned by the recipient.
Goods or services are found to be deficient.

When to issue a debit note

A supplier issues a debit note when the taxable value or tax charged is found to be lower than payable, for example a price escalation clause, a rate error, or additional charges such as freight that were missed.

Mandatory contents

Under rule 53, a credit or debit note must contain:

Name, address and GSTIN of the supplier.
Nature of the document (credit note or debit note).
A consecutive serial number, up to 16 characters, unique for the financial year.
Date of issue.
Name, address and GSTIN of the recipient, or for unregistered recipients, name, address and delivery address with state name and code.
Serial number and date of the corresponding tax invoice or invoices.
Taxable value, rate and amount of tax credited or debited.
Signature or digital signature.

A single credit note can now refer to multiple invoices, which is useful for volume discounts. For e-invoicing businesses, B2B credit and debit notes must be registered on the IRP and carry an IRN, as explained in our e-invoice guide.

Time limits

Document	Time limit for declaring in returns
Credit note	Not later than 30 November following the end of the financial year in which the supply was made, or the date of filing the annual return, whichever is earlier
Debit note	No such limit on issue for the supplier; the buyer's ITC time limit is linked to the financial year of the debit note date

Example: For an invoice dated 15 January 2026 (FY 2025-26), a credit note with GST adjustment must be declared by 30 November 2026, or earlier if the annual return for FY 2025-26 is filed before that date. After that, you can still issue a commercial credit note, but without reducing GST.

Discounts: when they reduce GST

Section 15(3) allows discounts to reduce the taxable value in two cases:

Discount shown on the invoice at the time of supply. This simply reduces taxable value on the invoice itself.
Post-supply discount through a credit note, only if the discount was established in an agreement entered into at or before the time of supply, is specifically linked to relevant invoices, and the recipient has reversed the input tax credit attributable to the discount.

If these conditions are not met, for example a goodwill discount decided months later, you can issue a financial or commercial credit note that reduces the amount receivable but not the GST. The recipient keeps the full credit and you keep the full tax liability.

Worked example 1: sales return

A Kanpur supplier invoices a registered buyer in Kanpur for goods worth ₹2,00,000 at 18%: CGST ₹18,000, SGST ₹18,000, total ₹2,36,000. The buyer returns 20% of the goods.

Line	Amount
Taxable value credited (20% of ₹2,00,000)	₹40,000
CGST credited at 9%	₹3,600
SGST credited at 9%	₹3,600
Total credit note value	₹47,200

The supplier's net taxable value becomes ₹1,60,000 with tax of ₹28,800 (₹14,400 CGST and ₹14,400 SGST). The buyer must reduce its ITC by ₹7,200 when the credit note appears in its GSTR-2B and it accepts it in IMS.

Worked example 2: volume discount agreed in advance

A distributor's annual agreement with a retailer says a 2% discount applies once purchases cross ₹50,00,000 in the year, on all invoices of the year. Purchases reach ₹60,00,000 (taxable value) by year end, all at 18% IGST. The distributor issues a single credit note listing the year's invoices:

Discount: 2% of ₹60,00,000 = ₹1,20,000.
IGST reduced: 18% of ₹1,20,000 = ₹21,600.
Credit note total: ₹1,41,600.

Because the agreement existed before the supplies and the credit note links to the invoices, GST can be reduced, provided the retailer reverses ₹21,600 of ITC.

Worked example 3: debit note for price escalation

A contractor invoiced ₹10,00,000 plus 18% IGST for steel fabrication. A price escalation clause later increases the contract value by ₹50,000. The contractor issues a debit note for ₹50,000 plus IGST of ₹9,000, total ₹59,000. The contractor pays additional tax of ₹9,000 in the month of the debit note, and the buyer claims ₹9,000 ITC when it appears in its GSTR-2B.

Reporting in returns

Supplier

GSTR-1 Table 9B: credit and debit notes to registered persons (CDNR) and to unregistered persons against B2CL invoices (CDNUR).
Adjust credit notes against B2C small supplies in the Table 7 summary.
Amendments in Table 9C.
The net effect flows into GSTR-3B Table 3.1.

Recipient

Credit notes appear in IMS and GSTR-2B and reduce ITC available.
Rejecting a genuine credit note in IMS increases the supplier's liability back, so it should be done only when the credit note is wrong.
Debit notes increase ITC when accepted.

Accounting entries for credit and debit notes

Using worked example 1 (return of goods worth ₹40,000 plus ₹7,200 GST):

In the supplier's books

Debit sales returns ₹40,000; debit Output CGST ₹3,600; debit Output SGST ₹3,600; credit customer ₹47,200. The output tax ledgers fall by ₹7,200, which is reflected in the next GSTR-3B through GSTR-1.

In the buyer's books

Debit supplier ₹47,200; credit purchase returns ₹40,000; credit Input CGST ₹3,600; credit Input SGST ₹3,600. The buyer's available ITC falls by ₹7,200 in the month the credit note appears in GSTR-2B.

Debit note in worked example 3

The contractor debits the customer ₹59,000 and credits sales (or contract revenue) ₹50,000 and Output IGST ₹9,000. The buyer debits the asset or expense ₹50,000 and Input IGST ₹9,000 and credits the contractor ₹59,000.

Credit notes and the buyer's ITC

A credit note does not only change your liability. It also changes your customer's credit, which is why buyer co-operation matters. When a credit note appears in the buyer's IMS, the buyer accepts it and its ITC is reduced. If the buyer had never claimed the credit on the original invoice, for example because the goods were rejected on arrival, the buyer can declare the actual ITC reversal amount where the portal allows. Talk to large customers before issuing big credit notes, explain the tax adjustment, and confirm that they will accept the document in IMS. Without this step, a rejected credit note increases your liability back in GSTR-3B. Our IMS guide covers the buyer's actions in detail.

Credit note versus revised invoice versus cancellation

Situation	Correct tool
Supply did not happen at all	Cancel the invoice (e-invoice within 24 hours) or issue a full credit note
Value or tax too high, goods returned	Credit note
Value or tax too low	Debit note
Wrong GSTIN or place of supply, value unchanged	Amend in GSTR-1 or GSTR-1A
Supplies made before registration certificate issued	Revised invoice
Discount not agreed beforehand	Financial credit note without GST

Common mistakes

Issuing GST credit notes for discounts decided after the supply.
Missing the 30 November deadline for prior-year credit notes.
Not linking credit notes to the original invoice numbers.
Forgetting to get IRN for B2B credit notes when e-invoicing applies.
Using a credit note to correct a wrong GSTIN instead of amending.
Not following up with the buyer to accept the credit note in IMS.

How Fininvo helps

In Fininvo ERP, credit notes and debit notes are linked to the original invoice, with automatic GST adjustment and accounts receivable update. Credit notes for returns, post-sale discounts or corrections, and debit notes for additional charges, flow into your GST data. Explore invoicing, accounting and pricing.

General information, not tax advice. Consult your CA for discount structures and time limits that apply to you.

Frequently Asked Questions

Can a buyer issue a credit note under GST?

No. Under GST, credit and debit notes are issued by the supplier. A buyer may issue a commercial debit note to request a reduction, but the GST credit note must come from the supplier.

Is GST reduced on all discounts?

Only on discounts shown on the invoice, or post-supply discounts agreed before the supply, linked to specific invoices and accompanied by the recipient's ITC reversal. Other discounts are adjusted through financial credit notes without GST.

What is the last date for a credit note for last year's sales?

It must be declared by 30 November following the end of the financial year, or the date of filing the annual return if earlier.

Can one credit note cover several invoices?

Yes. A single credit or debit note can be issued against multiple invoices, provided the invoice references are included.

Does a credit note need an e-invoice IRN?

Yes, for businesses covered by e-invoicing, B2B credit notes and debit notes must be registered on the IRP like invoices.

Credit Note and Debit Note Under GST: How to Issue Them