Credit notes and debit notes under GST: when to issue them and what they change

What is a credit note under GST?

A credit note is a document that reduces the taxable value or the tax on an invoice you have already issued. You issue it to the customer, it refers to the original invoice, and it lowers both what the customer owes you and the output tax you report.

The common reasons are simple. Goods came back. The price on the invoice was higher than agreed. Tax was charged at a higher rate than it should have been. The goods or services were short of what was billed.

What is a debit note, and who issues which?

A debit note under GST increases the taxable value or the tax on an invoice already issued. A supplier issues it when the original invoice was too low, for example a price increase agreed after billing or a line that was missed.

In everyday trade the words are also used from the buyer's side. Many businesses call the document they raise when returning goods to a supplier a debit note, because it debits the supplier's account. Your accountant will tell you which documents your supplier must issue for tax and which you keep for your own books.

What is the deadline for a credit note under GST?

As of October 2026, a credit note must be declared by 30 November following the end of the financial year in which the original supply was made, or the date you file the annual return, whichever is earlier (section 34 of the CGST Act).

In practice that means a return on an invoice dated in 2026-27 should be credited and reported before 30 November 2027 at the latest, and earlier if your annual return goes in first. A credit note issued after that date can still settle the customer account, but the tax reduction may not be available. Do not leave returns sitting in a corner of the godown waiting for the paperwork.

What must a credit note show?

A credit note should carry enough detail for the customer, your accountant and the tax officer to link it to the original sale without asking you. Most businesses print these on every note:

• Your name, address and GSTIN
• The words credit note or debit note, a serial number unique within the financial year, and the date
• The customer's name, address and GSTIN, if registered
• The number and date of the original invoice
• Each line with description, HSN or SAC, quantity and taxable value
• The tax rate and the CGST, SGST or IGST amount on each line
• The reason, such as goods returned or price revised
• Your signature or digital signature

Check the exact field list for your case on the CBIC site, and keep the note format the same as your tax invoice format so customers recognise it.

A credit note reverses the sale, the tax, the receivable and, if goods return, the stock

A credit note undoes a part of the original invoice in every place the invoice reached. Four things move at once:

• Sales go down through a Sales Returns account, so the original sale stays visible.
• Output tax goes down by the CGST and SGST, or IGST, charged on the returned lines.
• The receivable from the customer goes down by the full amount including tax.
• Stock comes back in, and cost of goods sold is reduced, at the original unit cost of the goods on the invoice, not today's average.

Using the original cost matters. The sale took the goods out at one cost; the return must bring them back at the same cost, or your gross margin for the period is wrong by the difference.

How does a 10-chair return work in practice?

Lakshmi Steel Furnitures, the fictional Coimbatore business on this site, sold 40 steel chairs to Kovai Office Interiors on invoice INV-2026-27-0042. Both are in Tamil Nadu, so the invoice charged CGST and SGST. The example uses 18% to keep the arithmetic clear; check the rate for your own product on the CBIC notification.

1. 1

   Invoice INV-2026-27-0042

   40 chairs at ₹2,400 each. Taxable value ₹96,000, CGST ₹8,640, SGST ₹8,640, total ₹1,13,280. The chairs left stock at an average cost of ₹1,500 each.

2. 2

   Ten chairs come back

   Kovai Office Interiors returns 10 chairs with scratched seats. The goods are checked in at the Main godown.

3. 3

   Credit note against INV-2026-27-0042

   10 chairs at ₹2,400. Taxable value ₹24,000, CGST ₹2,160, SGST ₹2,160, total ₹28,320. The customer now owes ₹84,960.

4. 4

   Stock comes back at ₹1,500

   10 chairs re-enter stock at the original unit cost, ₹15,000 in all, and cost of goods sold falls by the same amount.

The credit note posts this journal. The first four lines reverse the sale and the tax; the last two bring the chairs back at their original cost.

The gross margin on the 30 chairs that stayed sold is now ₹72,000 − ₹45,000 = ₹27,000, the same ₹900 a chair the original sale made. Had the chairs come back at a different cost, that figure would drift.

Why should you never edit or delete a posted invoice?

Editing a posted invoice rewrites a document the customer already holds and that may already sit in a filed return. The customer's copy, your GSTR-1 and your books stop agreeing, and nobody can show what changed or when.

• Edit the quantity from 40 to 30: the return disappears; stock and tax no longer match what was reported for the month.
• Delete and re-issue: the invoice number is gone or reused, which breaks the unique series per financial year.
• Leave the invoice alone and issue a credit note: the original stays, the correction is dated, and every report shows both.

If the whole invoice was a mistake, for example raised on the wrong customer, cancel it so that a reversal is recorded, and raise a fresh one. A cancellation is visible; a deletion is not.

Where do credit and debit notes go in GSTR-1?

Credit and debit notes are generally reported in GSTR-1 for the month or quarter in which you issue them, not the period of the original invoice. The return has separate tables for notes:

• CDNR: credit and debit notes to registered customers, reported with the customer's GSTIN and the original invoice details.
• CDNUR: credit and debit notes to unregistered customers, where that table applies. Your CA will know which notes go there.

The customer generally sees your credit note in their own GST statement and reduces the input tax they claimed. If they do not, the mismatch surfaces at their end, so tell them when you issue one. The GSTR-2B reconciliation guide covers the same check from the buyer's side.

How does SimpleERP handle credit and debit notes?

In SimpleERP, a credit note is a posted document like an invoice. Posting it writes the journal, the GST reversal, the receivable and, for tracked goods, the stock coming back, in one step. Debit notes to suppliers work the same way on the purchase side and reduce what you owe.

• Posted invoices and notes cannot be edited; cancelling one records a reversal, and the audit history shows who did what.
• CGST and SGST or IGST on the note follow the place of supply, as on the invoice.
• HSN or SAC is carried on every line.
• The sales and purchase registers include notes, so you can check them against GSTR-1 and GSTR-2B.

See the GST billing software page for how invoices and notes post, or start from the GST billing guide for the full picture.