Once a tax invoice is issued, you cannot edit it. Every change — a return, a discount, a mistake in quantity or price — is made with a credit note or a debit note under Section 34 of the CGST Act. Confusing the two is the most common billing error in small businesses.
The one-line rule
- Credit note: the supplier reduces what the buyer owes (and reduces the supplier's tax liability).
- Debit note: the supplier increases what the buyer owes (and increases tax liability).
Both are issued by the supplier. A buyer who wants to return goods asks the supplier for a credit note; a buyer's own "debit note" is an accounting memo, not a GST document (though in practice buyers send them to trigger the supplier's credit note).
When to issue which
| Situation | Document |
|---|---|
| Customer returns goods | Credit note |
| Post-sale discount agreed in advance | Credit note (with GST) |
| Goods found deficient / short delivered | Credit note |
| Invoice value or tax charged too high by mistake | Credit note |
| Price increase after invoice (contract escalation) | Debit note |
| Invoice value or tax charged too low | Debit note |
| Extra goods delivered against the same order | Debit note (or a fresh invoice) |
Generate them with the credit note and debit note tools — both reference the original invoice and compute the GST reversal.
Mandatory contents (Rule 53)
Supplier name/address/GSTIN; document type; a unique consecutive number; date; recipient's details; the original invoice number and date; taxable value and tax being adjusted; and signature. One credit note can cover multiple invoices of the same financial year (since 2019).
How it flows through GST
- The supplier reports the note in GSTR-1 (Table 9B) for the month it is issued.
- It appears in the buyer's IMS. The buyer must accept the credit note — the ITC reduction is tied to acceptance under the 2025 IMS rules.
- The supplier's liability reduces in GSTR-3B; the buyer's ITC reduces in GSTR-2B.
If the buyer rejects a genuine credit note, the supplier's tax stays high and the buyer has excess ITC — sort it out before the 3B deadline. See the IMS guide.
The time limit
A credit note reducing tax must be declared by 30 November following the financial year of the original invoice, or the date of filing the annual return, whichever is earlier. Miss it and you can still issue a commercial credit note (without GST) to adjust the price, but you cannot reduce your GST liability.
Debit notes have no such limit — the tax must be paid whenever the note is issued, with interest from the original due date if it corrects an under-charge.
Discounts: with or without GST?
- Discount known before or at supply and shown on the invoice: reduces taxable value directly.
- Post-sale discount agreed in advance (in a contract or scheme) and linked to specific invoices: credit note with GST; the buyer reverses proportionate ITC.
- Post-sale discount not agreed in advance (goodwill, year-end incentive): commercial credit note without GST; no change to tax on either side.
Two mistakes that get ITC reversed
- Issuing a fresh negative invoice instead of a credit note. Invoices cannot be negative; the portal rejects them and the buyer's ITC is stranded.
- Not linking the original invoice. A credit note without the invoice reference is invalid, and IMS cannot match it.
FAQ
Can I cancel an invoice instead of issuing a credit note?
Only if it was never acted upon and, for e-invoices, within 24 hours of IRN generation. Otherwise, use a credit note.
Does a credit note need the buyer's signature?
No. It is a unilateral document from the supplier, reported in GSTR-1.
Can a credit note be issued for a B2C sale?
Yes. Report it under the B2C tables in GSTR-1 (net of the adjustment), without the buyer's GSTIN.
What about a sales return by a composition dealer?
Composition dealers issue credit notes as well; they are reported in CMP-08/GSTR-4 as reductions in turnover.