🔍 What is a Credit Note?
A Credit Note is an official, GST-compliant financial document that reduces a client’s payment obligation against an existing Invoice. It is the system’s way of formally adjusting, returning, or refunding part (or all) of an Invoice without manual journal entries.
Key things to know about a Credit Note:
- It is always raised against a specific Invoice — pick the Invoice and the system pulls in the original line items for you to adjust.
- It is GST-compliant — CGST / SGST / IGST follow the same intra-state vs inter-state rules as the parent Invoice.
- It is permitted regardless of payment status — you can credit a fully-paid, partially-paid, or unpaid Invoice.
- The company details (name, address, GSTIN, state, logo) are pulled from the parent Invoice at the moment of creation, so the printed copy stays accurate even if you later edit your company profile.
- The system prevents double-crediting — once an Invoice line has been credited, it cannot be silently credited again.
🎯 When to Issue a Credit Note (With Real-World Example)
Use a Credit Note in any of these situations:
- Goods Returned — items physically returned by the client.
- Services Partially / Incorrectly Delivered — scope shortfall or wrong deliverable.
- Invoice Errors — wrong quantity, price, or overbilling.
- Post-Invoice Discount — a discount agreed after the Invoice was raised.
- Accidental Duplicate Invoice — reverse the duplicate.
- Incorrect Tax Rates / Amounts — fix CGST / SGST / IGST after the fact.
- Full or Partial Refund — return cash to the client.
✅ Real-World Scenario
You raised an Invoice for 10 units of a product at ₹1,000 each. The client returns 2 units. You open the Invoice, click Add Credit Note, tick the line item, and reduce the quantity from 10 to 8 in the Corrected Values row. The Credit Note is issued for the value of those 2 units (with GST), the client’s outstanding goes down, and the GST records are automatically corrected.
🧾 How to Create a Credit Note
📍 Screen: Billing → Credit Note → click Add (top-right). The Add Credit Note aside opens on the right — that aside is the screen where you fill in the fields below.
🔹 Header Fields
| Field | Description |
|---|---|
| Invoice Number (required) | Pick the Invoice you want to credit. The system loads that invoice’s billing items into the form so you can select which lines to adjust. The Client / Project / GST setup all follow from the chosen Invoice — there is no separate Client or Project field on a Credit Note. |
| Date (required) | Date of issuing the Credit Note. Cannot be in the future. We recommend keeping Credit Note dates in chronological order against the parent Invoice. |
| Debit Note Number | If the client has issued a corresponding Debit Note on their side, capture its reference here. Optional — used purely for cross-referencing. |
| Reason (required) | Why this Credit Note is being raised. Pick one of: Overcharge, Cancellation, Discount, or Other. |
💡 Currency follows the Invoice. A Credit Note inherits the parent Invoice’s currency and the currency rate that was frozen on it. You do not enter a fresh rate on the Credit Note — the original Invoice’s rate carries through, so the INR figures stay consistent across both documents.
📦 Billing Items
As soon as you pick an Invoice, the system fills the Billing Items table with that Invoice’s original line items. You then choose which lines to adjust and by how much.
| Column | Description |
|---|---|
| # | Row number from the original Invoice — preserved so you can match each line to the parent. |
| Select | Tick the checkbox to mark this line for credit. A second sub-row labelled Corrected Values appears underneath — that’s where you enter the new figures. |
| Title / HSN Code / Quantity / Unit Price / Net Amount | Read-only — these are the values from the original Invoice line, shown for reference. |
| CGST / SGST / IGST | Read-only on the original row — shown as percentage (%) with the calculated rupee amount underneath. Editable in the Corrected Values sub-row. |
| Total Amount | Read-only — the original line’s total including tax. |
✏️ Corrected Values (sub-row)
When a line is ticked, the Corrected Values sub-row lets you enter what the line should have been:
| Field | Description |
|---|---|
| HSN Code | Edit if the original HSN was wrong. |
| Quantity | The new quantity. Set to a lower number to credit the difference; set to 0 to credit the entire line. |
| Unit Price | The new per-unit price. Lower it to credit a price reduction, or to retroactively apply a discount. |
| Net Amount | Auto-calculated from corrected Quantity × Unit Price. |
| CGST / SGST / IGST | Enter each tax as a percentage (%). The system calculates the rupee amount automatically. Which fields are editable depends on the Invoice’s intra-state vs inter-state setup — see the GST behaviour note below. |
| Total Amount | Auto-calculated. The difference between the original Total and this Corrected Total is what gets credited. |
➡️ Repeat for any number of lines. Lines you do not tick are not part of this Credit Note.
📍 GST behaviour (CGST + SGST vs IGST)
- If the client’s state matches your company’s state (intra-state sale) → only CGST and SGST are editable; IGST is locked.
- If they are different states (inter-state sale) → only IGST is editable; CGST and SGST are locked.
- The Credit Note inherits this from the parent Invoice — the same intra/inter-state lock that applied on the Invoice applies here. The state comparison happens automatically the moment you pick the Invoice Number.
📌 Common adjustment patterns
- Quantity Reduction — keep Unit Price the same, drop the Quantity. The system removes the price and GST for the dropped units.
- Price-Per-Unit Reduction — keep Quantity the same, lower the Unit Price. Useful for retroactive discounts.
- Tax Rate Change — keep Quantity and Unit Price the same, change the CGST / SGST / IGST percentage. Useful when the wrong GST slab was applied originally.
📊 Summary Section
| Field | Description |
|---|---|
| Item Total | Sum of all corrected Net Amounts (before tax) — i.e. the credit’s pre-tax value. |
| Taxes | Total CGST + SGST + IGST being credited. |
| Grand Total | Final Credit Note amount including all taxes — this is the value of the credit being issued. |
📂 Tabs Inside a Credit Note
📍 Screen: Open any Credit Note from Billing → Credit Note. Across the top of the aside panel you will see up to four tabs — each tab is a separate screen within the same Credit Note, click a tab to switch the view.
- Details — the form / view of the Credit Note fields, the Credit Note Values table, the Corrected Invoice Values table, and (in view mode) the Refund Items and Applied Invoices history.
- Logs — change history of every edit made to this Credit Note. Visible only with Changelog permission.
- Credit Note View — the printable, branded layout exactly as the client will see it. This is also where the action buttons (Share / Send Email / Print) live.
- Refund — the Refund Payment screen. Visible only when there is a positive cash balance left on the Credit Note (i.e. when there is something refundable). See the Refund Client Guide for the full flow.
⚙️ Action Buttons
📍 Screen: The aside header shows different action buttons depending on the active tab and the Credit Note’s state. The Share, Send Email, and Print buttons live at the top of the Credit Note View tab, not in the header.
| Action | Description |
|---|---|
| Apply to Invoice | Header button on the Details tab — visible only when the Credit Note has a remaining cash balance and is not cancelled. Opens the Adjust Credit Against Invoice dialog so you can apply the unused balance to another open Invoice for the same client. See the Adjust Credit Against Client Invoice Guide. |
| Edit | Header button on the Details tab — visible when you have Update permission and the Credit Note is not cancelled. Opens the form for editing. |
| Share via WhatsApp | Inside the Credit Note View tab. Opens WhatsApp with a pre-filled message containing the Credit Note summary, ready to send to the client. |
| Send Email | Inside the Credit Note View tab. Emails the Credit Note (with a branded PDF attachment) directly to the client and the assigned owner. |
| Inside the Credit Note View tab. Generates a branded PDF of the Credit Note for download or printing. | |
| Refund (tab) | Opens the Refund Payment screen so you can return the cash balance to the client (full or partial). See the Refund Client Guide. |
| Cancel Credit Note | Footer button on the Details form — visible with Delete permission. Marks the Credit Note as cancelled. The Credit Note is never permanently deleted; cancellation preserves the audit trail and reverses its effect on the parent Invoice’s outstanding, GST, and stock counts. See the Cancel Credit Note Guide. |
💰 Status & Cash Balance
Each Credit Note carries a Status chip in the header:
- Active — the Credit Note is live and has effect on the parent Invoice’s outstanding, GST, and any applied / refunded amounts.
- Cancelled — the Credit Note has been cancelled. It is excluded from outstanding, GST, and revenue calculations, and any stock that was returned by the Credit Note is reversed.
💵 How the Credit Note’s Cash Balance Behaves
When you create a Credit Note, the system automatically applies it in this priority order:
- First — against the outstanding amount of the parent Invoice (reducing what the client still owes).
- Then — against any amount the client has already paid on that Invoice, which becomes a refundable cash balance.
- Then — available to apply against another open Invoice for the same client (via Apply to Invoice).
If the Credit Note’s value is more than the Invoice’s remaining balance, the excess does not create a negative outstanding on the Invoice. Instead, it stays as a cash balance on the Credit Note — visible in the Details tab as Applied Amount vs Refunded Amount. You can either apply that balance to another Invoice for the same client, or refund it back to the client. Cancelling the Credit Note resets this cash balance to zero.
🔄 Auto-Created Credit Notes (Invoice Cancellation)
When you cancel an Invoice that has already been issued, the system auto-generates a full-reversal Credit Note for the entire Invoice value. This keeps your GST records compliant — a cancelled Invoice cannot just disappear once it has been issued; it must be reversed via a Credit Note.
- The auto-generated Credit Note carries every line item, quantity, price, and tax from the original Invoice.
- It is dated the day the Invoice was cancelled.
- It appears in the Credit Note list just like any manually-created Credit Note.
🧾 Credit Note View & PDF
The Credit Note View tab shows the branded, printable version of the document — exactly what the client will see. It contains:
- From — your company’s snapshot details (name, address, phone, CIN, GSTN) at the moment the Credit Note was created.
- To — the client’s billing details.
- Credit Note metadata — Invoice No., Debit Note No., Credit Note No., Credit Note Date.
- Credit Note Values table — what is being credited.
- Corrected Invoice Values table — the original Invoice line shown alongside the corrected line, so the client can see exactly what changed.
- Subtotal / CGST / SGST / IGST / Total summary block.
💡 Snapshot Company Details. The branded PDF preserves the company name, address, GSTIN, state, and logo as they were on the day the Credit Note was issued — even if you later change the company profile, this Credit Note’s printed copy stays accurate.
📌 Key Points
- Credit Note is GST-Compliant: CGST + SGST applies for same-state clients; IGST applies for inter-state clients — same rule as the parent Invoice.
- Issued Against an Invoice: Every Credit Note is linked to an Invoice. Pick the Invoice first; everything else flows from it.
- GST Entry: GST is entered as a percentage; the rupee amount is calculated for you.
- Permitted Regardless of Payment Status: You can credit a fully-paid, partially-paid, or unpaid Invoice.
- Outstanding Behaviour: Applying a Credit Note reduces the parent Invoice’s outstanding. Excess credit becomes a cash balance on the Credit Note — it never creates a negative outstanding on the Invoice.
- Overpaid Status on the Invoice: Applying a Credit Note on its own does not flip the parent Invoice to “Overpaid” — only real excess cash received does.
- Cancel Instead of Delete: Once issued, a Credit Note cannot be permanently deleted; you can cancel it. Cancellation reverses its effect on the parent Invoice and on Catalog stock.
- Auto-Reversal on Invoice Cancel: Cancelling an Invoice auto-generates a full-reversal Credit Note for that Invoice.
- Stock Adjustment: For Catalog items that count quantity, the Credit Note returns stock to your inventory. Cancelling the Credit Note reverses that stock movement.
- Currency from the Invoice: The Credit Note inherits the parent Invoice’s currency and the rate frozen on it — no separate currency rate is entered.
- Snapshot Company Details: Printed copies stay accurate even if you later edit your company profile.
💡 Tips
- Always pick the correct Invoice Number first — every other field on the Credit Note depends on it.
- Use the Corrected Values sub-row to describe what the line should have been; the system figures out the difference.
- Pick a clear Reason (Overcharge / Cancellation / Discount / Other) so the audit trail tells the story months later.
- If excess cash is sitting on a Credit Note, decide between Apply to Invoice (against another open Invoice) or Refund (back to the client) — both options live on the Credit Note record.
- For raising the parent Invoice or understanding payment status, see the Invoice Guide.
- To apply unused credit to another Invoice, see the Adjust Credit Against Client Invoice Guide.
- To refund the cash balance to the client, see the Refund Client Guide.
- To cancel a Credit Note, see the Cancel Credit Note Guide.