You billed ₹1,18,000 in March. It should have been ₹94,400 — one line was quantity four, not five. The customer is not asking for money back; they want it taken off April’s bill. That is one document and two separate decisions, and most software runs them together.
In short
- Where
- Sales documents → Invoices → ⋯ → Create credit note
- Then
- Apply it to any open invoice for that customer, or refund it
- Shows in
- GSTR-1, CDNR section, against the original invoice number
- Cannot
- Exceed the invoice, or be raised against a draft
A credit note is not a deleted invoice
This is the part worth being clear about, because getting it wrong shows up in a return. The March invoice happened. It went out, the customer has it, and its tax was reported in March’s GSTR-1. You cannot make that untrue by editing the document.
What a credit note does is record a second, opposite event: on this date, for this reason, ₹23,600 of that supply was reversed. Both documents stand. The return shows the supply in March and the reduction in April, which is exactly what happened.
Step by step
Open the invoice that was wrong
Sales documents → Invoices. It has to be an issued invoice. On a draft, Create credit note is not offered at all — see below.
⋯ → Create credit note
The lines come across so you are editing a copy rather than typing a new document. Remove the lines that were right and reduce the one that was wrong.
Keep it within the invoice
The credit cannot exceed what the invoice was worth. Ask for more and it refuses rather than quietly creating a negative sale — which is a figure no return has a home for.
Issue it
Issuing gives it a number from your credit note series and makes it reportable. Until then it is a draft and touches nothing.
Apply it, or refund it
The credit note now carries a balance. Apply it to any open invoice for that customer — April’s, or one from June — in whole or in part. Or refund the money and record that instead. The panel on the credit note shows issued, applied and what is left.
The bit that trips people up. A draft invoice cannot be credited, and the refusal is the right answer: nothing has been sent and no tax has been reported, so there is nothing to give back. Edit the draft, or delete it. Credit notes are for documents that have already left the building.
What it does to the invoice
Apply a partial credit and the invoice moves to Partially credited with its balance reduced. Credit it in full and the invoice becomes Reversed — it keeps its number, keeps its place in the return, and owes nothing. It is not deleted, because it happened.
Where it shows up in your return
Credit notes issued to registered customers appear in the CDNR section of GSTR-1, carrying the original invoice number and date. That pairing is what lets the department — and your customer’s input credit — match the reduction to the supply it reverses. A credit note with no original reference is a credit note somebody will be asked about.
Common questions
Can a credit note be applied to a different invoice?
Yes. The credit sits as a balance against the customer and can be applied to any open invoice for them, in whole or in part.
Can a credit note be larger than the invoice?
No. It is capped at what the invoice was worth, and the excess is refused rather than creating a negative sale.
Why can I not credit a draft invoice?
Nothing has been sent and no tax reported, so there is nothing to give back. Edit or delete the draft instead.
Where does a credit note appear in GSTR-1?
In the CDNR section, carrying the original invoice number and date.
Correct as of September 2026.
Next
See it with your own data
Start free, import a spreadsheet of your customers, and raise a real GST invoice in the first ten minutes. No card, no sales call.