A debit note reduces what you owe a vendor. It is the mirror image of the credit note they would raise against themselves: the same event, seen from your end.

When to raise one

What happened	Debit note?
You returned goods	Yes.
They short-delivered but billed in full	Yes.
They billed at the wrong rate	Yes, for the difference.
Goods arrived damaged	Yes.
You have not paid yet and the bill is still a draft	No. Just fix the draft.

Raise it from the bill

Open the bill and choose ⋯, then Create debit note.
The window shows the bill total, what earlier debit notes already took off, and the room left.
Choose The whole bill to copy every line, or Part of it to copy the lines so you can trim them.
Give the reason: goods sent back, overcharged, short supply.
Check the draft, trim it if you chose part, then Issue it.

A debit note written from scratch asks for Against bill, and offers only that vendor’s bills that stand. A note that does not know its bill cannot be issued, because nothing would say what it reduces.

Once issued, the bill lists it under Debit notes and the note shows Against bill, each a link to the other. The note is spent on its bill straight away, but only as far as the bill still owes. The bill’s TDS is worked out again on the taxable value that is left, and the TDS register follows. The note also takes its cost and its input tax credit back in the period it is issued, in the GST summary, GSTR-3B and profit and loss.

Issuing needs Approve on debit notes. An issued note cannot be edited: cancel it and raise another, so the bill and the note never disagree.

What is left on it: the vendor's credit

A debit note is money the vendor owes you back. When the bill was already paid, or the note is bigger than what the bill still owed, the rest stays on the note. The panel on the right of the note shows what it was worth, what has been spent on bills, what the vendor has refunded, and what is left to use.

To	Do this
Set it against another of their bills	Apply to a bill. Only that vendor’s bills that still owe money are offered, at the cash still to pay them. The bill’s balance comes down by what you apply.
Record the money they sent back	Record a refund, into the bank account it arrived in. It shows on that account’s statement, and in Payments received under the vendor’s name.
Undo either	Press ↺ beside it on the note. The bill owes that money again, or the refund comes off the bank account, and the credit goes back onto the note.

A refund is taken back from its note, not from Payments received: the list sends you to the note, so the note is put right as well. A note the vendor has refunded cannot be cancelled until the refund is taken back, and a bill with credit spent on it cannot be cancelled or deleted until that credit is taken back.

When the bill had TDS and was already paid

You hold TDS back from every payment on a bill that carries it. A debit note lowers the bill’s TDS as well as its value, so part of what you held back is no longer tax, and it belongs to the vendor again. The note sets that part off against the bill first, and the vendor owes you the rest.

Line	Amount
Bill, ₹1,00,000 + 18% GST	₹1,18,000
TDS at 10% under 194J	₹10,000
Paid to the vendor	₹1,08,000
Debit note for half, ₹50,000 + GST	₹59,000
TDS on the bill now	₹5,000
Set off against the bill: TDS no longer owed	₹5,000
Left for the vendor to repay	₹54,000

Check it: the bill is now worth ₹59,000, less ₹5,000 of TDS, so ₹54,000 was due to the vendor. You paid ₹1,08,000, which is ₹54,000 too much. Spent on another bill that carries TDS, the credit covers only the cash still to pay on it, never the tax held back.

The four statuses

Status	Means
Draft	Being written.
Issued	Sent to the vendor, with credit still left on it.
Applied	All of it spent on bills or refunded. It moves here by itself.
Cancelled	Withdrawn.

Once one is issued or applied it cannot simply be edited away, which is the point: by then the vendor has a copy and it has affected your GST.

Why not just pay less

Because short-paying an invoice without a document creates a permanent, unexplained difference between what the vendor thinks you owe and what you think you owe. Every month somebody spends an afternoon on it.

A debit note makes the reduction an event with a date, a value and a reason, that both sides can see. The bill keeps its number and its history; the balance moves.

It is a GST document. A debit note changes your input tax credit in the period it is raised. It is not a note, and it is not an internal adjustment.

Getting it agreed

Send it. A debit note the vendor has never seen is a dispute you have not had yet, and it surfaces when they chase the difference.

Worked through

You ordered 5,000 brochures at ₹48. They delivered 4,600, and billed for 5,000.

Line	Amount
Their bill	₹2,40,000 + GST
Short by 400 at ₹48	₹19,200 + GST
Debit note you raise	₹19,200 + GST
What you now owe	₹2,20,800 + GST

The bill keeps its number, its date and its place in your records. The balance moves. Your input tax credit is reduced by the GST on the note, in the period you raised it; a month where debit notes outweigh your purchases shows the excess as ITC reversed (debit notes) in GSTR-3B, table 4(B)(2).

If the bill carried TDS at 2% under 194C, the TDS on it falls from ₹4,800 to ₹4,416 with the note, because ₹19,200 of the taxable value has gone.

The alternative, and why it is worse

You could simply pay ₹2,20,800 against a ₹2,40,000 bill and move on. Then:

The vendor’s ledger and yours disagree for ever by ₹19,200.
Somebody reconciles it every month and reaches the same conclusion every month.
Your input credit is overstated, because you claimed on the full bill.
When the vendor chases, nobody can find why it was short paid.

One document prevents all four.

Raise it and send it. A debit note the vendor has never seen is not an agreement, it is a dispute waiting for their statement to arrive.

Where to go next

Next in vendors Add a vendor → Record a bill from a vendor →

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