Debit note and credit note
A credit note reduces the value of an already-issued tax invoice and a debit note increases it, and both must be reported under GST so the corresponding tax adjustment is traceable.
Invoices cannot be altered once issued and reported. Corrections travel as separate documents: a credit note for a return, a shortfall, a rate error in the customer's favour or a post-sale discount; a debit note where the original undercharged.
The tax effect is not automatic on your side alone. A credit note only reduces your output tax liability if the recipient has correspondingly reversed the input tax credit they claimed — which is why a credit note issued long after the fact can fail to achieve anything.
There is a time limit, and it is one of the most commonly missed dates in GST. A credit note for a supply must be reported by a fixed cut-off after the financial year in which the supply was made; after that the commercial adjustment can still be made, but the tax cannot be recovered.
Key facts
- A credit note must be declared by 30 November following the end of the financial year of the original supply, or the date of filing the annual return, whichever is earlier.
- The output tax reduction requires the recipient to reverse the matching ITC.
- Both documents must reference the original invoice number and date.
- Both are reported in GSTR-1 and, where e-invoicing applies, must be registered for an IRN.
- Financial credit notes issued without GST adjustment are permitted but do not reduce tax.
Who this affects
Any business handling returns, rate corrections or post-sale discounts.
How YarnTally handles it
Sale cancellation and stock adjustment paths record the reversal against the original sale, and cancelled sales are excluded from every revenue aggregate and export.
See what else it doesReviewed September 2026. This is general information about how these rules work, not tax or legal advice, and thresholds and due dates do change. Check your own position with your chartered accountant before acting on it.