DEBIT NOTE

What is a Debit Note?

A debit note is a commercial document, common in business to business
(B2B) transactions, that either buyers or sellers may use regarding the
amount due for a sale of goods or services. It is essentially an additional
note related to an invoice, usually indicating the need to adjust the invoiced
amount.
Debit notes come into play because B2B sales are commonly made on
credit, meaning goods or services are provided to the buyer from the seller
before an invoice is paid. In the interim, the buyer or the seller may enter a
debit note or credit note in their accounting records to keep track of
amounts due.

Debit Notes from Buyers:

A debit note sent by the buyer to the seller of goods or services, related to
a purchase invoice, indicates an adjustment to the original invoiced
amount. (It is assuming that an invoice’s already been created by the seller
and sent to, and received by, the buyer. If there is not yet an existing
invoice, then the debit note indicates an adjustment that needs to be
included when the seller creates an invoice.) The adjustment is in the
buyer’s favor – that is, it indicates a reduction in the amount due to the
seller from the buyer. It is effectively a credit for the buyer and a debit for
the seller.

So, why and when does a buyer issue a debit note? A debit note is most
commonly created when part of a delivery or shipment of goods is being
returned to the seller because the returned goods are damaged or
defective. The debit note accompanies the returned goods, explaining in
adequate detail to the seller why the goods are being returned. Also, it
indicates the amount by which the seller needs to adjust its invoice to the
buyer, reducing the amount due for the sale by the appropriate amount.
A buyer might also issue a debit note because the seller failed to the goods
within an agreed-upon time or date or by or on a specified date.

If the buyer’s already paid the full invoice from the seller, then the debit
note may indicate a partial refund due to the buyer or obligate the seller to
provide a credit amount to the buyer’s account that will reduce the amount
due for future purchases.

Debit Notes from Sellers:

Debit notes that are sent by a seller to a buyer usually serve one of two
purposes. First, a debit note may be sent simply to serve as a reminder of
an amount due for a previously invoiced sale. In such a case, the debit note
is just a “bill payment due” reminder.

Second, a seller may send a debit note when it discovers a need to amend
a submitted invoice, increasing the amount due from the buyer.

Reasons for Issue of a Debit Note:

A debit note is issued by a buyer to a seller for the following reasons:-

● Amount stated in the invoice is incorrect

● Receipt of defective/damaged goods
● Overstatement of the value of the invoice
● Cancellation of the purchase of product/service
● When goods received do not measure up to the buyer’s expected
standards
A debit note is issued by a seller to a buyer for the following reasons:-

● Amount payable to the seller increases

● Understatement of the value of the invoice
● Addition made to the order of product/service

Debit Note Book or Ledger

● A separate book is maintained called a debit note book. Two copies
of the debit notes are maintained, one of which will be given to the
supplier. The other one remains in the debit note book and serves as
a record.
● When the credit note is received from the supplier, the same is
marked off against the debit note in the debit note book, thus
enabling a system of efficient tracking and balancing.
● Since one copy of the debit note is given to the supplier, the supplier
may use it as a reference point while issuing the credit note.

Importance of Debit Note under the GST Law:

As per Section 34(3) of the CGST Act 2017, a supplier of goods and
services issues a debit note when;

● Issuing of a tax invoice for the supply of services and goods

● Taxes charged as per the invoice are lower than the actual taxable
value of the supply made
● Goods/services supplied are more in quantity than the initially agreed
commitment as per the invoice
One of the most important roles that a debit note plays under GST is that it
forms part of the details with respect to GSTR-1, the month in which the
supply of goods was made. The same details form part of Form GSTR-2A
and GSTR-2B for the recipient. Once the verification is done, the recipient
may approve of it and submit it as part of their GSTR-3B.
Earlier, when reporting a credit note or a debit note, the original invoice
number was mandatorily required to be quoted on the GSTN portal in Form
GSTR-1 and Form GSTR-6.

Features:
To understand what exactly a debit note is, we will look at some of its most
significant features:

● Issued on Credit Purchase: When goods or services are purchased

on credit, a debit memo accompanies.
● Issued by Buyer or Seller: Buyers send this document to a seller,
listing out details of the purchase return. Vendors
also issue this document when invoices contain mistakes.
● Requires Acceptance: The document becomes valid only when the
sellers accept the debit memos—sellers make necessary changes in
their books of accounts.
● States the reason: in the debit memo, the buyer clearly mentions the
reason for returning the goods.
● Shown in Purchase Return Book: This note reduces the buyer’s
credit purchase amount and increases the purchase return figures. In
accounting entries, the purchases are debited, and purchase returns
are credited.
● Reduces Buyer’s Debt Obligation: From the buyer’s perspective,
the debit memo is a positive amount that will curtail their liability
towards the seller.
Debit Note Format:
● Company name (Issuer);
● Issuer’s address, zip code, phone number, and web address;
● Date of creating the debit memo;
● Order number for which it is issued;
● Date of placing the order;
● Order terms and conditions;
● Customer Id—as stated in the invoice;
● Company name (Buyer);
● Buyer’s address, zip code, phone number, and email id;
● Name of contact person (Buyer);
● Invoice details—item name (goods or services), item description,
the reason for debit, quantity, price, and total amount;
● Approval details— date, name and designation, and signature of
the issuer’s representative.
 CREDIT NOTE

What is a credit note?

A credit note is a document given by one party to another mentioning
that the sender credits the other party’s account in his books. After the
supplier’s issue of the tax invoice, if there is any reduction in the
taxable value of the goods supplied, he may issue a credit note
mentioning the prescribed particulars.

It is not precisely a refund but acts as a replacement for a refund

wherein the customer can buy the products later without paying for
them. A debit note reduces the buyer’s liability, and the seller issues
the credit note as an acknowledgement to the debit note raised by the
buyer.

Reasons why credit note is issued:

Section 34(1) of the CGST Act says that when a tax invoice is issued,
and the same is required to be amended to reduce the tax liability
mentioned in it, the supplier can issue a credit note. Some of the
common reasons for which the seller issues a credit note are:

● On account of sales returned by the buyer due to quality issues,

service rejection, or damaged goods receipt.
● Erroneously collected higher charges from the buyer or buyer
paid amount is more than invoiced value.
● Give a post-sale discount to the buyer.
● The quantity received by the customer is less than the one which
is mentioned in the tax invoice.
● Cancelling any pending payments against invoices.
● Any other similar reason.
Time limit to issue a credit note:
There is no time limit for the issue of a debit note or a credit note.
Issue of debit notes and credit notes should be declared in the
GST returns filed for the month in which such a document is
issued. GST law mentions the maximum time limit for declaring
the same in GST returns if it pertains to a particular financial
year. It should be declared on earlier of the below dates:

● 30th September of the following year in which such supply

was made.
● The actual date of filing the annual return of the concerned
period.

Contents of a credit note:

Below are the contents of a credit note:

● Name of business, address and GSTIN of the supplier

● Type of document, whether debit note or credit note.
● A unique serial number not exceeding 16 characters. It can
be numeric, alphabetic, alphanumeric or can even contain
specialised characters.
● Date of issue of document
● Name of business, address, and GSTIN of the supplier
● The taxable value of supply, rate, tax and amount of tax
credit to the buyer.
● Signature of the supplier or his authorised representative.
 Purpose of Credit note (Section 34)

● The credit note will be issued by the registered person (i.e.

Supplier) to the recipient for the following purposes:

a. Where a tax invoice has been issued for supply of any

goods or services or both and the taxable value in that tax
invoice is found to exceed the taxable value in respect of
such supply.

b. Where a tax invoice has been issued for supply of any

goods or services or both and tax charged in that tax
invoice is found to exceed tax payable in respect of such
supply.

c. Where goods or services or both supplied are found to

be deficient.

● Time Limit to issue Credit note:

The supplier shall declare the details of such credit note in

the return for the month during which such credit note has
been issued.

Maximum Time Limit The credit can be issued at the

earliest of the following:

September following the end of the financial year in which

such supply was made. or The date of furnishing of the
relevant annual return (the annual return has to be filed not
later than 31st December from end of the financial year)
 However no reduction in output tax liability of the supplier
shall be permitted, if the incidence of tax and interest on
such supply has been passed on to any other person.

● Importance of Credit Note:

Any amendment in original invoices for the reasons

mentioned above has to be made only by way of issuing
credit note and such credit note has to be shown while
filing GSTR-1 by the supplier after which such reduction in
value or tax will get reflected on the government portal and
the same will be communicated to the recipient in
GSTR-2A. After acceptance by the recipient such
information will be taken to GSTR-2 of the recipient and the
details of the original invoices will stand amended.
 PURCHASE BILL

What Is a Purchase Bill?

The Purchase Bill is the customer's receipt for the thing he
has purchased. A bill is a document that specifies the
amount of money that must be paid to fulfil an order. The
vendor refers to this bill as a Sales Bill because he is
selling the product, whereas the consumer refers to it as a
Purchase Bill since he is buying something from the
vendor. Money to be credited is shown on the sales bill,
while money to be credited is shown on the purchase bill.

A purchase bill comprises information such as a unique

reference number, the date of the bill, product details, the
name and full contact information of the individual involved,
the amount of taxes due if any, and much more. The
purchase bill indicates the sum that both the buyer and the
seller have agreed to.

Uses of purchase invoice or purchase bill:

Whenever a customer buys goods, the vendor must give a
purchase bill to the customer stating the description of the
goods, its price, tax and other such details. Vendors can
use simple purchase invoice templates to create
professional-looking and customised invoices for their
customers.
 Some of the uses of a purchase invoice are:

● Serves as proof of the goods sold.

● Provides information to the customers regarding
goods purchased and the amount payable.
● Indicates the amount owed by the customers against
the goods purchased.
● Helps for financial reporting purposes.
● Helps to maintain client information.
● Need to create purchase bills on accounting software

Creating purchase invoices through accounting software

is very useful in many ways:

Invoices are recorded in the accounting software, which

helps in the creation of various MIS reports. This further
helps in analysing customer needs and anticipating future
sales.
● Customer data can be stored in the accounting
software, which helps in data entry when creating
invoices. It saves time and effort.
● The accounting software helps to customize the bill as
per business requirements.
● All the product details can be stored in the accounting
software. These details are auto-populated at the time
of bill generation.
● It helps in financial reporting purposes and
streamlines the business’s billing process.
 How to create a purchase bill?
Below are the steps to create a purchase bill:

● Choose a suitable purchase invoice template.

● Place the company’s logo and customise it as per its
business requirements.
● Add the details of products sold with their description
and price.
● Update customer details such as name, address and
contact details.
● Update the total amount payable along with tax
details.
● Mention the payment modes accepted.
● Save the bill. One can use excel formats for better
tracking purposes.
Details that purchase bills must have
Purchase bills must contain the below information:

● Invoice number and invoice date

● Customer name and GSTIN
● Shipping and billing address
● Supplier’s GSTIN
● Place of supply
● HSN code/SAC code
● Product details, i.e. the description of goods sold,
quantity, unit, total value
● Taxable value
● Discounts given
● Rate and amount of taxes, i.e. CGST/SGST/IGST
● Mention if GST is payable on a reverse charge basis
● Signature of the supplier.
 GOODS AND SERVICE TAX(GST)

What is GST & how it works?

GST stands for Goods and Services Tax. It is an Indirect tax which is
introduced to replace a host of other Indirect taxes such as value
added tax, service tax, purchase tax, excise duty, and so on. GST
levied on the supply of certain goods and services in India. It is one
tax that is applicable all over India.

Given below is how will GST works:

● Manufacturer: The manufacturer will have to pay GST on the
raw material that is purchased and the value that has been
added to make the product.
● Service Provider: Here, the service provider will have to pay
GST on the amount that is paid for the product and the value that
has been added to it. However, the tax that has been paid by the
manufacturer can be reduced from the overall GST that must be
paid.
● Retailer: The retailer will need to pay GST on the product that
has been purchased from the distributor as well as the margin
that has been added. However, the tax that has been paid by the
retailer can be reduced from the overall GST that must be paid.
● Consumer: GST must be paid on the product that has been
purchased.
History Of GST
On July 1st 2017, the Goods and Services Tax implemented in India.
But, the process of implementing the new tax regime commenced a
long time ago. In 2000, Atal Bihari Vajpayee, then Prime Minister of
India, set up a committee to draft the GST law. In 2004, a task force
concluded that the new tax structure should put in place to enhance
the tax regime at the time.

In 2006, the Finance Minister proposed the introduction of GST from

1st April 2010 and in 2011 the Constitution Amendment Bill passed to
enable the introduction of the GST law. In 2012, the Standing
Committee started discussions about GST, and tabled its report on
GST a year later. In 2014, the new Finance Minister at the time, Arun
Jaitley, reintroduced the GST bill in Parliament and passed the bill in
Lok Sabha in 2015. Yet, the implementation of the law delayed as it
was not passed in Rajya Sabha.

GST went live in 2016, and the amended model GST law passed in
both the houses. The President of India also gave assent. In 2017 the
passing of 4 supplementary GST Bills in Lok Sabha as well as the
approval of the same by the Cabinet. Rajya Sabha then passed 4
supplementary GST Bills and the new tax regime implemented on 1st
July 2017.

Tax Laws Before the Implementation of GST

● The Centre and the State used to collect tax separately.
Depending on the state, the tax regimes were different.
● Even though import tax was levied on one individual, the burden
was levied on another individual. In the cases of direct tax, the
taxpayer must pay the tax.
 ● Prior to the introduction of GST, direct and indirect taxes were
present in India.

Types of GST:
The four different types of GST are given below:

● Central Goods and Services Tax : CGST is charged on the

intra state supply of products and services.
● State Goods and Services Tax : SGST, like CGST, is charged
on the sale of products or services within a state.
● Integrated Goods and Services Tax : IGST is charged on
inter-state transactions of products and services.
● Union Territory Goods and Services Tax : UTGST is levied on
the supply of products and services in any of the Union
Territories in the country, viz. Andaman and Nicobar Islands,
Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and
Chandigarh. UTGST is levied along with CGST.

Who is Eligible for GST?

The below mentioned entities and individuals must register for Goods
And Services Tax:

● E-commerce aggregators
● Individuals who supply through e-commerce aggregators
● Individuals who pay tax as per the reverse change mechanism
● Agents of input service distributors and suppliers
● Non-Resident individuals who pay tax
● Businesses that have a turnover that is more than the threshold
limit
● Individuals who have registered before the GST law was
introduced.
Registration of GST
Any company that is eligible under GST must register itself in the
GST portal created by the Government of India. The registered
entities will get a unique registration number called GSTIN.

It is mandatory for all Service providers, buyers, and sellers to

register. A business that makes a total income of Rs.20 lakhs
and more in a financial year must be required to do GST
registration. It takes 2-6 working days to process.

Know the GSTIN - GST Identification Number

A 15-digit distinctive code that is provided to every taxpayer is
the GSTIN. The GSTIN will be provided based on the state you
live at and the PAN. Some of the main uses of GSTIN are
mentioned below:

● Loans can be availed with the help of the number.

● Refunds can be claimed with the GSTIN.
● The verification process is easy with the help of the GSTIN.
● Corrections can be made.
Verify GST Number Online by visiting
https://services.gst.gov.in/services/searchtp. Enter the GSTIN
mentioned on the invoice in the search box and followed by
captcha, Final click "enter" to view the details.

GST Certificate:
A GST Certificate is an official document that is issued by the
concerned authorities for a business that has been enrolled
under the GST system. Any business with an annual turnover of
Rs.20 lakh or more and certain special businesses are required
to be registered under this system. The GST registration
certificate is issued in Form GST REG-06. If you are a registered
taxpayer under this system, you can download the GST
Certificate from the official GST Portal. The certificate is not
issued physically. It is available in digital format only. GST
Certificate contains GSTIN, Legal Name, Trade Name,
Constitution of Business, Address, Date of liability, Period of
Validity, Types of Registration, Particulars of Approving Authority,
Signature, Details of the Approving GST officer, and Date of
issue of a certificate.

GST Returns
A GST Returns is a document that contains information about
the income that a taxpayer must file with the authorities. This
information is used to compute the taxpayer's tax liability. Under
the Goods and Services Tax, registered dealers must file their
GST returns with details regarding their purchases, sales, input
tax credit, and output GST. Businesses are expected to file 2
monthly returns as well as an annual return.

GST Rates
The GST Council has assigned GST rates to different goods and
services. While some products can be purchased without any
GST, there are others that come at 5% GST, 12% GST, 18%
GST, and 28% GST. GST rates for goods and services have
been changed a few times since the new tax regime was
implemented in July 2017.
Advantages of GST
The following are the advantages of goods and services tax in
India

● Regulation of the unorganized sector

● E-commerce operators no longer suffer from differential
treatment
● Fewer complications
● Composition scheme
● Registration process and filing of returns are simple
● Higher threshold
● Elimination of the cascading tax effect.

GST Payments
Currently, the GST must be paid every month. The GSTR-1
and GSTR-3B must be filed. In the case of refunds, the
relevant forms must be submitted as well. GST payments
can be made both online and offline. Once the payment
has made, a challan must be generated.

GST E-Way Bill

An electronic document that is generated to show proof of
goods movement is the E-Way bill. You can generate the
bill from the GST portal.