Free credit note generator

Last reviewed: October 2026 · Also in: हिन्दी · தமிழ் · मराठी · Deutsch · Français

What a credit note does

An issued invoice is a record: it has a number in your series, it is in your sales ledger and, in most countries, it has already been reported to the tax authority. When the amount turns out to be too high, you do not edit it. You issue a credit note that points at it and says by how much it is reduced, and why.

A credit note does three things at once. It reduces the sale in your books, it reduces the tax you owe on that sale (and the input tax your business customer may claim), and it reduces the balance the customer owes. What happens to the money is a separate step: you either refund it or let the customer use the credit against a future invoice.

How to fill in this credit note generator

1. Add your business and the customerUse exactly the names, addresses and tax numbers (GSTIN or VAT number) on the original invoice.
2. Reference the original invoiceEnter the original invoice number and date in their own fields, e.g. INV/2026-27/0118 dated 18 Sep 2026; both print on the note. If one credit note covers several invoices, list the others in the notes.
3. List only what is creditedAdd a line for each returned item or overcharge with its quantity and rate. For a percentage discount, add one line for the discount amount.
4. Use the original tax rateSet the same GST or VAT rate as the invoice line. In India, the regime (CGST + SGST or IGST) follows the two GSTINs, as it did on the invoice.
5. State the reason and the settlementSay why (sales return, rate difference, discount, deficiency, cancellation) and whether you will refund or adjust against the next invoice.
6. Issue itCheck the totals, then sign in to issue: the credit note gets the next number in your series, the sale and tax are reversed in your books, and it is ready for GSTR-1 or your VAT return. Issuing needs the Sales module.

When to issue a credit note

If the invoice is still a draft, nothing has been issued: correct the draft. A credit note is only for invoices that have been issued.

Example: a GST credit note for returned goods

Kaveri Home Appliances in Bengaluru invoiced Sahyadri Retail in Pune for 20 mixer grinders on invoice INV/2026-27/0118. Three arrived damaged and were returned. Karnataka to Maharashtra is an inter-state supply, so the original invoice charged IGST at 18%, and the credit note reverses IGST on the three units.

1. Nature of the document: the words "Credit note".
2. Serial number: consecutive, at most 16 characters, unique for the financial year. A separate series from invoices is usual.
3. Original invoice number and date: required; one credit note may list several invoices.
4. Supplier name, address and GSTIN.
5. Recipient name, address and GSTIN if registered.
6. Reason: not a listed field in rule 53(1A), but auditors and the buyer expect it.
7. Goods credited with HSN, quantity and taxable value.
8. Tax credited at the original rate: IGST here, because the original sale was inter-state.
9. Signature or digital signature of the supplier or an authorised person.

A partial credit: a discount agreed after the sale

Northwind Design Studio and its Bengaluru client agreed in the contract that the client gets 10% off once the project passes acceptance. The ₹1,20,000 project was invoiced in full; on acceptance, Northwind credits 10%. Both are in Karnataka, so the credit splits into CGST and SGST.

What goes on a credit note, field by field

India: credit notes under GST (section 34)

Under section 34(1) of the CGST Act a registered supplier may issue a credit note when the taxable value or tax charged on a tax invoice is more than it should be, when goods are returned, or when goods or services supplied are found deficient. Since February 2019 one credit note may cover one or more invoices of the same financial year.

Time limit

A credit note that reduces tax must be declared by 30 November following the end of the financial year in which the supply was made, or the date the annual return for that year is filed, whichever is earlier. For a supply invoiced on 18 September 2026 (FY 2026-27) that is 30 November 2027, unless the annual return is filed before then. After that date you can still issue a commercial credit note, but it no longer reduces GST.

The buyer must reverse the input tax credit

From 1 October 2025 the proviso to section 34(2), substituted by the Finance Act 2025, allows the supplier to reduce its output tax only if the registered recipient has reversed the input tax credit attributable to the credit note (for unregistered recipients, only if the tax was not passed on to anyone else). In practice the buyer accepts the credit note in the Invoice Management System (IMS), which reverses its credit; a credit note the buyer rejects does not reduce the supplier's liability.

Reporting in GSTR-1

• Report the credit note in GSTR-1 for the month (or quarter, under QRMP) in which it is issued, not the month of the original invoice.
• Registered buyers: table 9B, CDNR (credit/debit notes, registered).
• Unregistered buyers where the original invoice was a large inter-state B2C invoice (above ₹1 lakh) or an export: table 9B, CDNUR.
• Other unregistered buyers: net the credit against the month's B2C supplies in table 7 (B2CS).
• Corrections to a credit note already reported go in table 9C.

E-invoicing

If your business must e-invoice (aggregate turnover above ₹5 crore in any year since 2017-18), B2B credit notes need an IRN from the Invoice Registration Portal just like invoices. Businesses with aggregate turnover of ₹10 crore or more cannot report a credit note to the portal more than 30 days after its date, so issue and report them promptly.

Discounts after the sale

A discount given after supply reduces the taxable value only if it was agreed before or at the time of supply and is linked to the relevant invoices (section 15(3)(b)), and the recipient reverses the matching input tax credit. Discounts that do not meet these conditions can still be passed on through a financial or commercial credit note without GST: the supplier's tax and the buyer's credit stay as invoiced (CBIC Circular 92/11/2019-GST). The Finance Act 2026 rewrites section 15(3)(b) to tie the discount to a section 34 credit note and ITC reversal; check whether it has been notified before relying on the new wording.

Journal entry for a credit note

For the returned mixer grinders above, the seller's entry reverses the sale and the output tax and reduces the customer's balance:

If you then refund the money: debit the customer ₹11,328 and credit the bank. If the customer keeps the credit, the balance stays on their account and is set off against the next invoice. The buyer records the mirror image: debit the supplier, credit purchase returns and the input IGST.

In TallyPrime the same entry is a Credit Note voucher against the party, with the original invoice selected in the bill-wise details. In LuckPanda, issuing the credit note posts this entry for you; a posted entry is never edited, only reversed.

United Kingdom: VAT credit notes

HMRC treats a credit note as valid for VAT only if it reflects a genuine overcharge or an agreed reduction in the price, and it is issued within 14 days of any refund being paid to the customer (VAT Notice 700, section 18.2.3). It must show:

• its own identifying number and date;
• your and your customer's names, addresses and VAT registration numbers;
• for each item: a description, the quantity and the amount credited, and the total credited excluding VAT;
• the rate and amount of VAT credited, in sterling;
• the number and date of the original VAT invoice.

Adjust the VAT in the return for the period in which the reduction happens (section 18.2.6). You and your customer may instead agree not to adjust the VAT, in which case no VAT credit note is needed, but both sides must keep the original VAT. A credit note is not the route for unpaid invoices: use bad debt relief, available once the debt is more than six months overdue and written off in your accounts (VAT Notice 700/18).

EU and United States

EU. Under article 219 of the VAT Directive, any document that amends an invoice and refers to it specifically is treated as an invoice, so a credit note needs the same core details as the invoice it corrects. Article 90 lets the taxable amount be reduced for cancellations, refusals and price reductions after supply.

• Germany: call it a Rechnungskorrektur or Stornorechnung. In German VAT law a "Gutschrift" is a self-billed invoice issued by the buyer (§ 14 (2) UStG). A correction by the seller labelled "Gutschrift" is not treated as one (UStAE 14.3), but the clearer term avoids confusion; the real risk is a genuine self-billed Gutschrift showing VAT the supplier does not owe, which creates a liability under § 14c UStG. B2B e-invoices are being phased in: every business must be able to receive them since 1 January 2025, and corrections to an e-invoice are issued as e-invoices too.
• France: the document is a facture d'avoir (or simply avoir). It carries the mandatory invoice details, its own number in the sequence and a reference to the original invoice. Since 1 September 2026 every VAT-registered business must be able to receive e-invoices, and large and mid-sized companies must issue them; small businesses issue from 1 September 2027.

United States. There is no federal format. Businesses usually call it a credit memo (credit memorandum). If the original invoice charged sales tax, refund the tax on returned taxable goods and deduct the returned sale on your next sales tax return; each state sets its own rules and some require the refund to reach the customer first.

Credit note vs debit note vs refund vs credit memo

Most "credit note vs refund" confusion goes away once you separate the paperwork from the money: the credit note changes what is owed; the refund is a payment that settles the credit. You can refund all of a credit, part of it, or none, and carry the rest forward.

Mistakes to avoid

• Editing or deleting the issued invoice. It breaks the number series and the tax record. Issue a credit note, then a new invoice if needed.
• No reference to the original invoice. Without it the credit cannot be matched, and in India and the UK it is not a valid tax credit note.
• A different tax rate or tax type from the original. Credit IGST if the sale was IGST, even if the customer has since moved state.
• Missing the GST time limit. After 30 November of the following year, a credit note no longer reduces your GST.
• Assuming the credit note is the refund. Record the refund as a payment; until then the customer holds a credit.
• Issuing a credit note for a bad debt. Use bad debt relief (UK) or a write-off; it is not a ground for a GST credit note.
• Calling a German correction "Gutschrift". Use "Rechnungskorrektur".
• Using the invoice series for credit notes. Keep a separate series (CN/…) so both stay continuous.

Key terms

Credit note

A seller's document that reduces the amount, and the tax, of an invoice already issued.

Credit memo

The US name for a credit note.

Debit note

A supplier's document that increases an invoice; also a buyer's claim on a supplier for returned goods.

Sales return

Goods sent back by the customer; the usual reason for a credit note.

Input tax credit (ITC)

The GST a business buyer may set off against its own GST; a credit note reduces it.

CDNR / CDNUR

GSTR-1 table 9B sections for credit and debit notes issued to registered and unregistered recipients.

Invoice Management System (IMS)

The GST portal screen where a buyer accepts or rejects suppliers' invoices and credit notes.

Questions people ask