# How to handle debit notes and credit notes under GST with AI

> Under GST, the vendor issues a credit note when the invoice was too high (goods returned, short supply, a rate above the agreed one) and a debit note when it was too low. The debit note a buyer raises for a short supply is a commercial document: it tells the vendor what you will not pay, but the GST on the invoice comes down only when the vendor issues the matching credit note.

Source: https://www.zerogrunt.ai/guides/debit-note-vs-credit-note-gst · By ZeroGrunt team, ZeroGrunt · Updated 2026-11-02

## The two notes at a glance

| | Credit note | Debit note |
|---|---|---|
| Under GST, issued by | The vendor (supplier) | The vendor (supplier) |
| When | The invoice was too high: goods returned, short supply, rate above the agreed one, a discount after the sale | The invoice was too low: the rate or quantity billed was less than the actual |
| Effect on GST | Reduces the vendor's output tax and your input credit | Increases both |
| The buyer's own "debit note" | Not a GST document. It records, in your books, what you will not pay | |

## The short-supply case, step by step

A vendor invoices 1,200 pairs of shoes. Your goods receipt shows 1,160. Forty pairs never arrived.

1. **You raise a debit note** on the vendor for the 40 pairs, the day the gap is found. In your books it reduces what you owe the vendor.
2. **You send it to the vendor** and ask for a credit note against the original invoice.
3. **The vendor issues the credit note** and reports it in its GST return.
4. **The credit note shows in your GSTR-2B**, and you reduce the input credit you took on the original invoice.

Until step 3 happens, the tax on the invoice has not changed. That is why the debit note on its own is not enough.

## Why the same day matters

A vendor who hears about a short supply the same week usually agrees and sends the credit note. A vendor who hears about it three months later disputes it, and by then the goods receipt, the transporter and the people involved are hard to find. Most vendor disputes start as a debit note raised late.

## The entries in your books

| When | Entry |
|---|---|
| You book the vendor's invoice | Purchases and input GST debit; vendor credit, for the full invoice |
| You raise your debit note | Vendor debit; purchases credit, for the short supply |
| The vendor's credit note arrives | Input GST reduced by the tax on the credit note |

Your accountant will set the exact GLs. The point is that your debit note and the vendor's credit note are two halves of one correction.

## How to do it with AI

1. The AI matches each invoice to the PO and the GRN as it lands.
2. A short supply or a rate above the PO gets a debit note the same day.
3. It drafts the credit-note request to the vendor, ready to send in one tap.
4. You approve from email. The vendor hears the same week, not next quarter.

This is how Agent Zero works.

## Questions people ask next

### Debit note vs credit note under GST: who issues which?

Under GST, the vendor issues a credit note when the invoice was too high (goods returned, short supply, a rate above the agreed one) and a debit note when it was too low. The debit note a buyer raises for a short supply is a commercial document: it tells the vendor what you will not pay, but the GST on the invoice comes down only when the vendor issues the matching credit note.

### Can the buyer issue a debit note under GST?

The buyer can raise a debit note in its own books to record the amount it will not pay. It is not a GST document, so it does not reduce the tax on the invoice. Ask the vendor for a credit note against the original invoice.

### What should a credit note mention?

The vendor's and your GSTIN, a credit note number and date, the original invoice number and date, the value and tax being reduced, and the reason.

### What happens to my input tax credit when the vendor issues a credit note?

The vendor reports the credit note in its return, it shows up in your GSTR-2B, and you reduce the input tax credit you took on the original invoice by the tax on the credit note.

### Is there a time limit for credit notes?

Yes. A credit note for a financial year has to be declared by the vendor by a cut-off after the year ends. Raise your debit note the day you find the gap, so the vendor has time to issue it.