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Purchase Returns & Debit Notes

A purchase return sends goods back to the vendor — because they were defective, short‑dated or simply not wanted. It raises a debit note that reverses the stock and the input GST (ITC) you had claimed, and reduces what you owe the vendor.

Purchase returns and debit notes

What we're sending back​

On GRN‑1187, 0.5 MT of HDPE Granules came in as wet, contaminated bags and was quarantined. That stock never entered available inventory, and now goes back to Gujarat Polychem on a debit note. At the PO rate of ₹27,600/MT that's ₹13,800 of goods plus ₹2,484 of IGST:

Value
Defective HDPE — 0.5 MT × ₹27,600₹13,800
IGST @ 18% (reversed)₹2,484
Debit note total₹16,284

When you'll use it​

  • Defective quantity picked up during the goods‑receipt quality check (our case).
  • Damage or a spec mismatch found after putaway.
  • Over‑supply, or the wrong items shipped by the vendor.

:::tip Defective quantity auto‑drafts a return The 0.5 MT flagged defective on GRN‑1187 auto‑drafts a return for you. Open the draft, confirm what's going back, and post it — no need to key the item, quantity or batch again. :::

1. Raise the return — step by step​

  1. Open the source PO‑3391 or GRN‑1187 and choose Return (or start fresh at Purchase → Returns → ＋ New Return). Opening the auto‑drafted return pre‑fills the vendor, item, quantity and batch.
  2. Confirm the vendor (Gujarat Polychem) and the line to send back — HDPE Granules, 0.5 MT.
  3. For batch‑tracked items, confirm the batch/lot being returned — B‑HDPE‑2607 — so the right stock and its exact cost reverse.
  4. Enter a reason (Defective) and any vendor return / RMA reference the supplier gave you.
  5. Post the return. Raya raises debit note DN‑0574 against the vendor.

2. What happens on posting (Dr/Cr)​

Posting mirrors the original purchase in reverse — it is a Debit Note voucher:

Dr  Accounts Payable (Gujarat Polychem) ... 16,284
    Cr  Purchase Returns (Inventory) .......... 13,800
    Cr  Input IGST (ITC reversal) .............. 2,484

Line by line, posting the return:

  • Stock — the 0.5 MT is removed from the Quarantine sub‑location; net HDPE retained falls to 29.0 MT.
  • Debit note — DN‑0574 is raised against the vendor, reducing what you owe.
  • Input GST / ITC — the ₹2,484 of IGST claimed on those goods is reversed, so your ITC only ever reflects goods you kept.
  • Vendor ledger — Gujarat Polychem's payable is reduced by the ₹16,284 debit note value.

:::caution Reverse the ITC, don't just drop the stock A purchase return isn't only a stock movement — the input tax credit must be reversed too, or your GSTR‑3B over‑claims ITC on goods you sent back. Posting the debit note does both in one entry; never adjust stock for a return without the matching debit note. :::

3. Settling the debit note​

The debit note can be adjusted against the vendor's bill (our case), against other outstanding, or the vendor may issue a refund. Finance allocates it bill‑wise, the same way payments are matched, so the vendor account always ties out.

Recall the numbers from the three‑way match: bill VB‑2094 left ₹10,84,916 in Accounts Payable (₹10,85,836 less ₹920 §194Q TDS). Applying DN‑0574 brings the net payable down:

Bill VB-2094 — Accounts Payable ..... 10,84,916
Less debit note DN-0574 ............. (  16,284)
                                     -----------
Net payable to Gujarat Polychem ..... 10,68,632

When Finance pays on the due date (05 Sep 2026), the Payment voucher clears the net balance:

Dr  Accounts Payable (Gujarat Polychem) ... 10,68,632
    Cr  Bank ................................... 10,68,632

Separately, the withheld tax is remitted to the government by its due date:

Dr  TDS Payable (§194Q) ... 920
    Cr  Bank ..................... 920

After all of this, the vendor's payable is nil, ITC reflects only the 29.0 MT + 400 kg you kept, and the ₹920 sits in TDS Payable until the challan is filed. The PO closes once the short 0.5 MT is either re‑shipped or written off.

:::note GST reporting Debit notes flow into your GST returns (GSTR‑1 CDNR) and the GSTR‑2A/2B reconciliation, keeping your input‑tax credit accurate after the reversal. The original bill number is preserved on the note so the portal can link them. :::