Returns, discounts and credit notes
Handle a return, a discount after the sale, or a billing mistake without rewriting the original invoice.
5 min read
Once a tax invoice is issued, you don't edit it. If the sale changes afterwards — goods come back, you give a discount, you billed the wrong amount — you issue a separate document that corrects it. Going down, it is a credit note. Going up, a debit note. The original invoice stays exactly as it was.
Why not just change the invoice?
Because someone else may already be relying on it. A business customer may have reported it and claimed the GST on it. You may have reported it in your own return. Changing it quietly makes the two sides disagree, and that mismatch is what the tax system notices. A note leaves a clear trail: here was the sale, here is what changed, here is why.
Credit note: the amount went down
Issue a credit note when the value of a sale falls after the invoice:
- The customer returned some or all of the goods.
- You gave a discount after the sale — for paying early, or a volume discount at month end.
- You charged too much — the wrong price, or the wrong rate of tax.
- Goods or a service turned out short or faulty and you agreed a lower price.
A credit note reduces the tax you owe on that sale, and reduces what your customer can claim.
Debit note: the amount went up
Issue a debit note when the value rises after the invoice:
- You undercharged — a price or a rate was too low.
- Extra quantity was delivered and accepted.
- A price change agreed after the invoice, such as a freight charge added later.
A debit note adds tax for you to pay, and lets your customer claim the extra.
| What happened | Note to issue |
|---|---|
| Goods returned | Credit note |
| Discount after the sale | Credit note |
| Price or tax overcharged | Credit note |
| Price or tax undercharged | Debit note |
| Extra goods sent and accepted | Debit note |
What goes on a note
A note looks much like an invoice, and carries:
- Your name, address and GSTIN, and the customer's if they are registered
- Its own serial number and date
- The number and date of the original invoice it corrects
- The value and the tax being reduced or added, split the same way as the original (CGST + SGST, or IGST)
- A short reason: "goods returned", "discount for early payment"
Keep a separate number series for credit notes and debit notes. They should not share numbers with your invoices, and each series should run in order without gaps.
Report it, and in time
Notes go into your GST return for the period you issue them, just like invoices. There is a limit on how late you can issue a credit note and still reduce your tax, and it is tied to the financial year of the original sale. Check the current limit on the GST portal or with your CA, and don't let corrections pile up until after the year closes.
The usual mistake is handling a return or a discount informally — cash back, or "I'll adjust it on the next bill" — with no note. Your books then say you sold more than you did, and you pay GST on money you never kept.
Discounts at the time of sale are different
If the discount is agreed before or at the sale and shown on the invoice, you don't need a note at all — just charge tax on the price after the discount. A note is only for changes that happen after the invoice has gone out.
Not registered?
If you are not on GST, you don't issue GST credit notes. But still write down returns and refunds with a reference to the original bill, so your records match your bank account.
The invoice maker below produces a correctly laid-out tax invoice; use it for the original sale, and keep each note beside the invoice it corrects.