Hello friends, greetings for the day in the current article we will discuss about credit note under GST. In this article we will discuss every aspect of credit note. As per 2(37) of CGST Act credit note means an document issued by a registered person under 34(1).

A supplier has to issue tax invoice in case of supply of goods or services or both however during the course of business there can be possibility of:-

credit note

  • Supplier has wrongly declared a value which is more than the actual value of goods or services provided.
  • Supplier has wrongly declared a higher rate of tax than what is applicable on that supply of goods or services.
  • Quantity received by the recipient is less than what has been declared in tax invoice.
  • Quality of goods are not up to the mark so the recipient is to be reimbursed total or partial amount of invoice value.
  • Any other similar reason

In the above cases the act has provided a facility to issue of credit note for the smooth running of business.Once the credit note has been issued the output tax liability of the supplier will reduce subject to fulfillment of provisions of sec 43.

What is “Credit Note”

In case of tax invoice has been issued for supply of goods or services or both and the taxable value or tax charged exceeds the taxable value or tax payable in respect of such supply or in case where the goods are returned by the recipient or in case of goods or services are of deficient nature the registered person who has supplied such goods or services or both may issue to the recipient “Credit Note”

TAX LIABILITY

The person who issues credit note in relation to the supply of goods or services or both must declare the details of such credit note in the return for the month but not later than September following the end of  financial year in which supply was made or the date of furnishing of the relevant annual return, whichever is earlier . However it should be kept in mind that “the output tax liability cannot be reduced in cases where credit note has been issued after September”.

CREDIT NOTE- WHAT CGST ACT SAYS?

  • As per 34(1) where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient a credit note containing such particulars as may be prescribed.
  • As per 34(2) any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed: Provided that no reduction in output tax liability of the supplier shall be permitted, if
  • the incidence of tax and interest on such supply has been passed on to any other person.

Matching, reversal and reduction in output tax liability

The output tax liability of the supplier gets reduced once the credit note is issued and it is matched. As per Sec 43 the details of credit note relating to outward supply furnished by a registered person shall be matched:-

  • with the corresponding reduction in the claim for input tax credit by the recipient in his valid return for the same tax period or any subsequent tax period.
  • For duplication of claim for reduction in output tax liability.

The claim for reduction in output tax liability by the supplier that has been matched would be accepted and communicated and where the reduction in the output tax liability exceeds the corresponding reduction in the claim for input tax credit or credit note is not declared by the recipient then the discrepancies would also be communicated.

The duplication in the claim for reduction in output tax liability shall be communicated. In case the discrepancies are not rectified in the month of communication than such amount would be added to the output tax liability of the succeeding month.

In case any amount is added to the output tax liability then he shall be liable to pay interest at the rate specified in sec 50(1).

RECORDS

The records of the credit have to be retained until the expiry of seventy-two months from the due date of furnishing of annual return for the year pertaining to such accounts and records. Where such accounts and documents are maintained manually, it should be kept at every related place of business mentioned in the certificate of registration and shall be accessible at every related place of business where such accounts and documents are maintained digitally

In case of any doubt related to this topic or any provisions of GST then you may contact us at [email protected]

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14 Comments

  1. Sabarish says:

    Dear sir,

    Greetings & Good Day.. A supplier sold the goods to us for higher value than the actual value with GST (50 nos of Invoice in Aug’19). Can we request to Issue the credit note with GST one to one invoice wise.

    Kindly clarify….

  2. Vikas Jindal says:

    How the tax liability for the Credit Note Issued to a registered person in a particular month shall be adjusted in which, there is no registered supply available but supply to interstate unregistered persons is made?
    Because in pt. No. 3.1 of GSTR-3B, Taxable Amount will be Tax Liability Adjusted after Credit Note but in Pt. No. 3.2 Taxable Amount and Tax Amount will be shown but the amount in 3.1 is less than the amount to be shown in Pt. 3.2 as there is no registered supply equal to or greater than the registered credit note.

  3. Mohit Gaur says:

    We have issued Invoice @12% now the GST rate is changed to 5%. Now, if we issue Credit note or Debit note against the @12% than at what rate should we charge GST?

  4. Indrakumar says:

    In case of goods return, instead of issuing credit note to the customer and reduce the tax liability, can we avail input credit based on customer invoice for the returned goods

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