What is a debit Note?

In the course of business, We land up in situations where we have to claim money from our customers not pertaining to our product/services. A few examples could be:

  • Claiming Out of Pocket Expenses
  • For Rate Differences
  • For Discounts
  • For Quantitative/ Qualitative Differences

We cannot raise Invoices for the same, as it does not pertain to the Value of our Goods/Services and also because we dont want to pay taxes twice by raising an Invoice.

In these circumstances, consider raising a Debit Note.

See Format of a Debit Note Below:

Debit note copy

To clarify on the Tax Portion of this:

This is taxable:

  1. Let’s take a case where You promise to provide a particular service to a client for a fixed fee of Rs. 10000
  2. The Service requires you to spend Rs. 1000 on travel, Rs. 3000 on incidentals etc.
  3. In this case, You cannot escape the ambit of tax by simply indicating these items separately in the Invoice.

This is not taxable:

In case You agree to provide a particular service to the client for a fixed fee, also agreeing to reimburse all Out of Pocket Expenses. you purely avail some services in your capacity as an agent because

  • You don’t consume them for your sake
  • You receive purely the amount which I incurred for the sake of the client
  • So you don’t raise an Invoice on this rather a DEBIT NOTE for the same.

So,

  1. Clearly agree on your Fees + OPE reimbursement with your client beforehand
  2. Raise a Debit Note for OPE ( Not an Invoice )

You can read more on the taxability aspect here

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