Detailed analysis on changes made in credit notes as per the 55th GST Council Meeting Recommendation under the GST Law, 2017
Summary: The 55th GST Council Meeting‘s recommendations include amendments to Section 34(2), Section 38, Section 39(1), and Rule 60 of the CGST Act, along with the introduction of Rule 67B. These changes focus on improving the management of credit notes under the GST Law, 2017. A credit note is issued by a supplier to adjust tax on an invoice, typically due to overvaluation, incorrect GST rates, or returned goods. The amendments aim to streamline the reversal of input tax credit (ITC) and ensure accurate reporting in Form GST Returns. Key changes include the requirement for recipients to either accept or reject credit notes, with consequences on ITC adjustments and the supplier’s output tax liability. The introduction of a Legal Invoice Management System (IMS) will enforce compliance and reduce discrepancies. Suppliers must ensure accurate uploading of credit notes in Form GSTR-1, while recipients must promptly act on credit notes to avoid penalties. These changes are designed to improve tax administration, prevent revenue loss, and provide clarity to taxpayers, with the new rules coming into effect on January 1, 2025.
Dear Colleagues, Good day. You all know that the 55th GST Council has made certain recommendations to amend Section 38 and Rule 60 to provide a legal frame work in relation to the generation of Form GSTR-2B based on the action taken by the taxpayers on the Invoice Management System (IMS).
The recommendations are:-
1. Amendment to 34 (2) of the CGST Act,2017,
2. Amendment to Sec.38 of the CGST Act,2017 and rule 60 of the CGST Rules,2017,
3. Amendment to Sec.39(1) of the CGST Act,2017,
4. Amendment to Rule 61 of the CGST Rules,2017,
5. Insertion of a New Rue 67 B in the CGST Rules, 2017.
The Government of India will be amend Section 34(2) of the CGST Act,2017 to categorically require recipients to reverse input tax credit (ITC) attributable to credit notes, in due course allowing suppliers to reduce their output tax liability.
What is CREDIT NOTE under GST Law?
The Credit Note means, “Credit Note is a document, which was issued by the supplier to the recipient to adjust the taxable value and tax charged on the Original Invoice”.
Under what circumstances, the supplier will issue Credit Notes?
The supplier issues Credit Note under these following Circumstances:
(i) Over Valuation of the Invoice,
(ii) Applied incorrect rate of GST,
(iii) Quantity of supply of goods reduced ,
(iv) The Recipient returns the goods due to defects or Charged higher rate against terms of the contract price,
Once the supplier has given Credit Note, the supplier’s Output Tax liability gets reduced, and provided the recipient shall be matches the corresponding reduction in ITC Portion (Input Tax Credit Portion).
What is the impact of amendment to Credit Notes as per 55th GST Council recommendation?
The importance of amendment to Credit Notes is to reflect accurate Turnover and Tax component in Form GST Returns, especially it needs to be adjusted in the Form GSTR-1 in the following tables of GSTR-1:
(i) The Credit Note value should be deducted from total supplies,
(ii) The Output Tax liability needs to be reduced accordingly,
(iii) The recipient should reverse any input tax credit, they have claimed against Original Invoice to the extent of Credit Note.
Major Issues in Present System relating to Credit Notes under GST.
Under the present system of GST framework relating to credit notes a supplier should issue a credit note to reduce his tax liability. But the recipient could independently opt for to reverse the Input Tax Credit (ITC) claimed on the invoices related to the Credit Notes. It’s caused discrepancies, where the recipient failed to reverse the Input Tax Credit (ITC). Due to this Government is losing revenue. So, the 55th GST Council recommended to the Government to amend relevant sections and insertion of new rule and new guidelines.
New Rules enforced to generate Credit Notes w.e.f.01.01.2025 as per the below areas:
1. Mandatory action upon receiving a Credit Note( Recipient),
2. Impact on ITC (Input Tax Credit),
3. Make Legal Invoice Management System ( IMS).
Mandatory action upon receiving a Credit Note (Recipient): When a Supplier issued a Credit Note and uploaded in his GSTR-1, the recipient must know whether he accepts or rejects such Credit Note. The pending option is no longer available to the recipient.
Impact on ITC (Input Tax Credit): If the recipient accepts such credit note, he must adjust his Input Tax Credit (ITC), accordingly, secure the Government’s revenue remains entire by facilitating bring about reversal. However, rejecting the Credit Note will not affect the Input Tax Claimed (ITC) with the Government adjusting the supplier’s output liability for the next month.
Make Legalized Invoice Management System( IMS): As per the recommendation of 55th GST Council, the CBIC has given revised guidelines which will integrate system of an invoice matching framework to assure that all the transactions are lined up genuinely. Finally, puts a stop of discrepancies and enforcing compliance in all types of taxpayers.
What are the details to be mentioned in the Credit Note and is any specified format prescribed in CGST Law,2017?
In this regard, the CGST Law does not prescribe any specific format of Credit Note but the supplier shall mention the following details in Credit Note to better understand by the Recipient and GST officials to finalize audits smoothly without unnecessary demand.
| Particulars | Requirement |
| Name, Address, Supplier’s GST No. | To know who has issued concern Credit Note. |
| Nature of the Document. | To know Value and Tax are credited to the Recipient. |
| Serial No of the Credit Note. | To know the supplier has mentioned “Unique Number for each Financial Year. |
| Date of Credit Note issued . | To know the date of issued credit Note by the supplier. |
| Name , Address and Recipient’s GST No. | To know and compare Recipient’s details and turnover and ITC claim. |
| Relevant Original Tax Invoice Details. | To know whether such Credit Note relating to Original Tax Invoice No and Date. |
| Taxable Value and Tax Rate. | To know Value and Tax Component of the Original Invoice and tax credit available to the recipient. |
| Signature/ Digital signature of the Supplier. | Authorized representative’s Signature. |
Why these changes are important to taxpayers?
(i) To Improve Government Revenues: If the Government implements this by mandatory actions regarding Credit Notes, it can be useful to government for better control of revenue leakage.
(ii) This system has given clarity to the taxpayers: The intention of the Government to introduce this system is to give clarity to the taxpayers for treatment of Credit Notes during return fillings.
What are implications to Supplier’s and Recipient’s point of view of new changes?
Supplier’s Point of View:
(a) Suppliers make sure that each credit note, they have issued is correctly uploaded in Form GSTR-01 and closely records its acceptance status from recipient.
(b) Failure to make certain transactions are processing of Credit Notes can lead to an unwanted enhance in future tax liabilities, as rejected credit notes will revert their Output Liability.
Recipient’s Point of View:
(a) Recipient need to improve efficient manners to address credit notes quickly, either reject or accept such credit notes to manage his Input Tax Credit claim correctly in his monthly GST returns.
(b) If the Recipient has not followed the above new changes relating to Credit Notes, he cannot avoid punishment by way of penalties from the GST department during the audit period.
Conclusion:
As a Taxpayer must know about new changes in relation to Credit Note and adopt new GST Credit Note Rules, 2025 on treatment of accounting and reporting such credit note values in his Form GST Returns for better management of accounting system and avoid unnecessary legal complication under GST Law by the supplier and recipient point of view.
Disclaimer
The above article is for knowledge purpose only, the author is not responsible for any legal binding. The views are purely personal and the above article is based on today’s GST Law position.
THNAK YOU.
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