Credit Note vs Debit Note: When to Use Which
An issued GST invoice can't be edited — see why, and what to do instead. Credit notes and debit notes are that "what to do instead," and the choice between them comes down to one question: does the correction lower the invoice's value, or raise it?
Credit note: the invoice was worth less than issued
- A price was overcharged.
- Goods were returned, in whole or part — see sales returns and the credit note trail.
- A post-sale discount is being applied — see the GST-compliant way to do this.
- The service delivered fell short of what was invoiced.
A credit note reduces both the taxable value and the GST charged, proportionally — it's a real reduction in tax liability, not just a note-to-self.
Debit note: the invoice was worth more than issued
- An undercharge is discovered after the invoice was issued.
- Additional work or materials are billed after the fact — see debit notes for extra charges.
- A wrong (too-low) GST rate needs correcting upward — see correcting a wrong GST rate.
A debit note increases the taxable value and the GST owed — the recipient's additional input tax credit, if they're registered, is tied to the debit note's own date, not the original invoice's.
What both have in common
Neither is optional paperwork layered on top of the original invoice — both are their own document type, with their own numbering (see managing separate numbering series if you keep notes distinct from invoices), and both must reference the original invoice they're correcting. The invoice itself stays exactly as issued, unaltered — the correction is a separate, dated record of what changed and why.