Decoding: Tax Liability in case of debit note

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Tax Liability

Whenever a transaction involves the supply of services or goods, different types of documents need to be issued under certain circumstances. These documents mainly include the tax invoice, credit note, debit note and finally the bill of supply. This article, however, aims at explaining the debit note and the tax liability associated with it, in detail.

What Exactly Is A Debit Note in GST?

A debit note in GST comes under section 35 (3) of 2017’s CGST act. It is one of the necessary documents that a supplier needs to issue the recipient of goods or services where –

  • A GST tax invoice has been sent for any supply of services or goods or both. And the taxable value in the issued invoice is less than the taxable value associated with such supply.
  • Goods or services that are supplied come out to be more than the specified quantity in the tax invoice.

In any of these cases, the supplier of goods or services needs to issue a debit note to its receiver. You can also learn more on debit note and enhance your knowledge. For the time being, let us focus on our intent.

When Is a Debit Note Issued?

When a registered supplier sends goods or services, he needs to issue a tax invoice as a compulsory document. However, along with the issuing of tax invoice, the supplier needs also need to issue a debit note in any of these situations :

  • The registered supplier supplies the goods or services at a value that is less than the actual value of those goods or services
  • The registered supplier charges a less tax rate than the actual rate that’s applicable on the goods or services he has supplied.
  • Finally, the number of services or goods received is more than the amount declared in the invoice by the sender.
  • Others

Also, a debit note requires a supplementary invoice along with it.

Adjusting The Tax Liability in case of Debit Note

Time Limit For The Issuance of Debit Note

Unlike a credit note, a debit note needs not be sent at a specific time. In short, there is no time limit.

Output Tax Liability of Sender

A debit note sent by the registered supplier increases his output tax liability. This is associated with the value of taxable goods or services mentioned in the invoice being less than the original delivery of those goods or services. Such kind of supply requires a supplementary invoice that should be sent along with the invoice for the goods/services that are not charged according to their original price. Therefore, the supplier needs to use this document as proof in the return for the week or month in which a debit note is issued.

Record of Debit Note

Both the supplier and the receiver should maintain all the records of the debit note along with the supplementary invoices for a period of 72 months or 3 years.

This period starts from the date of provisioning of the annual return that relates to the issuance of these documents. However, when these documents are maintained manually, a record should be maintained. Such type of record should be maintained at every business place that is mentioned in the certificate of registration. Moreover, if the documents are maintained digitally, they must be accessible from all the related business places.

Overall, a supplementary invoice or a debit note is a document that is issued to enhance the value of supplied goods or services in the original invoice. The method of sending these documents is easy as well as remains legal when it comes to revising the taxable amount mentioned in the original invoice.

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