An invoice has gone out and the figure on it is wrong. You cannot change it, so the correction has to be its own document — and there are two of those, pointing in opposite directions.
Which way the balance moves
Both notes adjust an invoice that already exists. The only thing separating them is direction.
| Document | Effect on what the customer owes | Typical trigger |
|---|---|---|
| Credit note | Reduces it | Goods returned, over-billing, post-sale discount, cancellation |
| Debit note | Increases it | Short billing, rate revision, a charge that was missed |
The words come from the supplier's ledger, not from a bank statement. In your books the customer sits as a debtor; crediting that account brings the balance down, debiting it pushes the balance up. Nearly everyone's instinct runs the other way, because on a bank statement a credit is money arriving. That instinct is the source of most of the confusion here, and the fix is to say the direction out loud — this note reduces what they owe — rather than trusting the word.
A worked example makes it concrete. You invoiced 40 office chairs at ₹4,500 each: ₹1,80,000 taxable, ₹32,400 IGST at 18%, ₹2,12,400 in total. Six arrive damaged and go back. The credit note covers six chairs — ₹27,000 taxable, ₹4,860 tax, ₹31,860 credited. Same invoice, same rate, different quantity.
Now flip it. The contracted rate was ₹4,800 and the invoice went out at ₹4,500. The debit note recovers the gap: ₹300 × 40 = ₹12,000 taxable, ₹2,160 tax, ₹14,160. Not ₹4,800 × 40. The note carries the difference, never the full value a second time. Get that wrong and you have produced something that looks exactly like a duplicate invoice — and accounts payable will treat it as one, which means it sits on hold while somebody asks around.
Who issues which, and why it trips people up
A supplier who over-billed raises a credit note. A supplier who under-billed raises a debit note. So far, tidy.
The complication is that buyers write documents called debit notes too. A purchase department that receives short delivery, or rejects a batch, will send the supplier a debit note that says, in effect, we are holding back this much. Same words, different document.
The buyer's note is a claim. It records the buyer's position in the buyer's books and it starts a conversation. What it does not do is adjust anybody's tax. The note that carries a GST adjustment is the one the supplier issues against their own invoice, because that is the document that flows into the supplier's return and into the customer's input tax credit.
The practical consequence catches people every time. A customer sends you a debit note for rejected goods; you file it, reduce the receivable in your ledger, and consider the matter closed. It is not. Nothing has been issued against your invoice, so your GST return still carries the original figure and your customer's credit is never reversed. Both sides look wrong in a reconciliation months later. What settles their debit note is a credit note from you.
So name the party on the face of the document. A note that says who raised it and who it was raised on can be filed by a stranger. A note that says neither is a figure that someone has to trace by hand.
What belongs on either note
The two documents have the same shape, which is convenient: if you can produce one you can produce the other.
| Field | Why |
|---|---|
| Note number | Unique, in its own sequential series — CN-2026-0014, DN-2026-0007. |
| Note date | When the adjustment was issued. It drives the return period. |
| Against invoice | The original invoice number this adjusts. Not optional. |
| Original invoice date | Often months earlier, and the fastest way to find the right one. |
| Issued to / raised on | Customer name, address and GSTIN where they are registered. |
| Place of supply | Decides CGST + SGST against IGST, and must match the original. |
| Reason | Return, rate correction, discount, cancellation, short billing. |
| Line items | The quantity and rate being adjusted — the difference, not the invoice. |
| Taxable value | The value being adjusted, before tax. |
| Tax adjusted | At the rate the original carried, split the same way. |
| Total | The figure, and the same figure in words. |
| Settlement | Offset against the next invoice, or refundable, or already paid. |
The free credit note template carries this layout with against invoice and invoice date in the header where they belong, and the debit note template is the same document pointing the other way.
One thing the table does not say loudly enough: those series are separate from each other and from your invoice series. A credit note that borrows a number from the invoice run leaves a gap in the invoice run, and a gap is the first thing anyone auditing you will ask about. Two extra sequences cost nothing and answer the question before it is asked.
Why you never edit the original invoice
The instinct, when an invoice is wrong, is to open it, fix the figure, and send it again with the same number. It feels like the smallest possible correction. It is the most expensive one.
Your customer may already have booked the original and claimed input tax credit on it. That claim does not change because you changed a PDF — their statement still shows the figure you first sent, and now the two documents in circulation disagree. Your own return may already contain the original. And whoever holds the first PDF holds a valid-looking invoice for a different amount under the same number, permanently, with no way to tell which one is real.
There is also a subtler loss. An edited invoice records an answer but not an event. A credit note records the event: what changed, when, against what, and why. That trail is the entire point of the instrument, and six months later it is the only reason anyone can explain the number.
Reissuing under a fresh number and cancelling the old one is clean, but only while nothing has moved — nothing sent, nothing booked, nothing filed. Once the invoice has left the building, the correction is a note.
The reason and the tax split are what actually get read
Two fields carry more weight than everything else on the page.
The reason goes first, because it decides how the note is treated. "Goods returned" and "post-sale discount agreed" can produce an identical figure at the bottom while describing different transactions: one reverses a supply that did not stand, the other adjusts the price of a supply that did. An auditor reads it before the numbers, and by then nobody involved remembers the circumstances. Write it into the note, not into the covering email. Two-thirds of a line is enough as long as something in it is checkable — "six of 40 chairs returned damaged, GRN 4471 dated 12 August" against "as discussed".
Then the tax. Show the taxable value and the tax adjusted as separate lines, at the rate the original carried, split the way the original split it. A note that offers a single figure — "credit ₹31,860" — forces the recipient to work backwards to a tax component, and they will round it differently from you. Your customer has to reverse exactly the credit they claimed; if the ₹4,860 is not printed on your note, they reverse the wrong amount or they reverse nothing, and it surfaces as a mismatch in a reconciliation months later. It lands as their problem first and yours immediately afterwards.
Timing belongs in the same breath. There is a cut-off for declaring adjustments against a financial year's supplies in GST returns, and it has shifted more than once, so check the current one rather than working from memory. A note raised after it still moves the receivable in your books, but the tax component is stranded — you have a commercial adjustment with no return to put it in.
The short version
- Credit note reduces what the customer owes; debit note increases it. Say the direction out loud instead of trusting the word.
- The supplier's note is the one that carries tax. A buyer's debit note is a claim, and it is settled by a credit note from you.
- Carry the original invoice number and date on every note. Without them it is a figure with no home.
- Adjust the difference, not the whole invoice again, and label the lines so that is obvious.
- Write a reason somebody can verify, and print the tax as its own line. Those two fields are what the note gets judged on.