Credit Note, Debit Note or Delivery Challan? Which GST Document to Issue When
Goods came back, a price changed after billing, or stock is moving without a sale? A tax invoice is the wrong document for all three. Here's which GST document fits each situation, with the rules and worked examples.
By BizToolsIndia Editorial Team · Published · 4 min read
Key takeaways
- Never edit an issued invoice. Reduce it with a credit note or increase it with a debit note, both referring to the original.
- Goods moving without a sale — job work, approval, branch transfers — travel on a delivery challan, not an invoice.
- A credit note must be declared by 30 November after the financial year, or by the annual return date if earlier; after that, the GST can't be reduced.
- All three use a serial number of up to 16 characters, unique for the financial year, like a tax invoice.
Quick guide: which document fits
| Situation | Document | Effect on GST |
|---|---|---|
| Customer returns goods | Credit note | Reduces your output tax and the buyer's credit |
| Agreed discount given after the sale | Credit note (if conditions are met) | Reduces tax |
| You over-charged the rate or tax | Credit note | Reduces tax |
| Price revised upward after billing | Debit note | Increases tax |
| Extra quantity or charges billed later | Debit note | Increases tax |
| Material sent for job work | Delivery challan | No tax charged on the challan |
| Goods on approval / sale or return | Delivery challan, then an invoice if accepted | Tax charged on the invoice |
| Transfer to your own branch | Delivery challan (or invoice, if the branch has a separate GSTIN and it's a taxable supply) | Depends on registration |
Credit notes: when the invoice was too high
A credit note is issued by the supplier when the taxable value or tax on an invoice turns out to be more than it should be — goods returned, a deficient supply, an over-charge, or a qualifying post-sale discount.
| Amount | |
|---|---|
| Taxable value credited | ₹10,000 |
| GST credited (CGST ₹900 + SGST ₹900) | ₹1,800 |
| Credit note total | ₹11,800 |
Your output tax goes down by ₹1,800 and your customer reduces their input tax credit by the same amount. Use the same GST rate as the original invoice, even if the rate has changed since.
Important
Post-sale discounts can reduce GST only if the discount was agreed before or at the time of supply and can be linked to specific invoices, and the buyer reverses the matching input tax credit. Otherwise, a commercial credit note can be issued without reducing GST.
Debit notes: when the invoice was too low
A debit note increases an earlier invoice. Price escalation clauses, a rate charged too low, extra quantity or freight billed later are common reasons.
| Amount | |
|---|---|
| Additional taxable value (100 × ₹20) | ₹2,000 |
| GST at 18% | ₹360 |
| Debit note total | ₹2,360 |
Your registered customer can claim input tax credit on the debit note, just as on an invoice. Note the jargon trap: in everyday accounting, a buyer sometimes sends a “debit note” to a supplier when returning goods. Under GST, that adjustment is made by the supplier's credit note.
Delivery challans: goods moving without a sale
When goods leave your premises but no sale is happening yet — or the quantity isn't known — they travel on a delivery challan. Typical cases are job work, supply on approval, transfers between your own locations, and goods sent for repair, testing or exhibition.
- Show the consignor and consignee with GSTINs, HSN codes, description, quantity and value.
- Make three copies: original for the consignee, duplicate for the transporter, triplicate for you.
- An e-way bill may still be required for movement by road above the notified value, even without a sale.
- If goods sent on approval are accepted, issue a tax invoice at that point.
Rules all three share
- A serial number of up to 16 characters, unique for the financial year — keep a separate series for each document type to stay organised.
- Your name, address and GSTIN, the recipient's details, the date and a signature.
- Credit and debit notes must state the number and date of the original invoice.
- If your business is on e-invoicing, credit and debit notes must also be reported to the Invoice Registration Portal. See GST invoice rules: numbering and e-invoicing.
Create them in a minute
The Credit Note Generator, Debit Note Generator and Delivery Challan Generator include every field above, link notes to the original invoice and download as PDF. For the original invoice itself, use the GST Invoice Generator.
Frequently asked questions
Can I cancel an invoice instead of issuing a credit note?
An invoice can be cancelled only before it's reported in your returns (and, for e-invoices, within the portal's cancellation window). After that, issue a credit note.
Does a credit note need the customer's acceptance?
For the customer to reduce their input tax credit correctly, they need your credit note. In practice, agree the adjustment with them before issuing it.
Is a delivery challan needed for every stock transfer?
Transfers within the same GSTIN typically move on a delivery challan. Transfers to a branch registered under a different GSTIN can be taxable supplies that need a tax invoice. Check how your locations are registered.
Can one credit note cover several invoices?
Yes. List each original invoice so both sides can match the adjustment.