Credit Note

What is a credit note under GST?

A tax invoice is essential for the sale of goods and services, but under specific circumstances it may require a few changes. This is why a credit/debit note is issued.

A credit note is an authorised memo informing the customer of how much money the supplier owes them, in case any errors have been detected in the original invoice. This amount can be deducted by the supplier from the next invoice or refunded back to the customer.

When is a credit note issued under GST?

Credit notes can be issued in cases such as:

• When a product is mistakenly sold to a customer for a price higher than it’s original value.
• When the tax rate charged by the supplier for the goods and services is more than what is applicable.
• When the customer does not receive the exact quantity of products they have requested in the tax invoice.
• When the quality of goods and services supplied do not meet the customer’s standards.
• When the products are returned to the supplier.

What should a credit note contain?

Every credit note must contain the words “Revised Invoice”, as well as the following details:

• The name, address, and GSTIN of both the supplier and customer.
• The context and date of issue.
• A unique serial number containing only numbers, letters and the special characters “-” and “/”.
• The customer’s state and state code if they are not registered under GST.
• The date and serial number of the original corresponding tax invoice or in some cases, bill of supply.
• The initial and amended prices or tax rates charged along with the amount of tax credited to the recipient.
• Recipient’s signature

A supplementary invoice must be issued along with the credit note. Supplementary invoices are only delivered when there is a discrepancy in the original tax invoice.

How do credit notes affect a supplier’s tax liability? 

Details of the Credit Note, provided by the supplier in order to reduce the tax liability, are to 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 claims for reduction in output tax liability.

Note that the output tax liability of a supplier will not be reduced if that transaction is transferred to a new registered person.

When should the details of a credit note be provided?

The details of any credit notes must be mentioned by a supplier when filing returns for the month, in order to alter tax liability. 

Credit note specifications must be declared to the government either by the September following the financial year in which the transaction occurred, or by the date of filing of the relevant annual return (GSTR-9), whichever arrives first.

Do credit note need to be maintained?

All information and records of a credit note must be made accessible both physically and digitally until they expire, 72 months from the date of filing the annual returns.

What can be done when credit notes need to be issued for multiple invoices?

Instead of creating individual credit notes for multiple invoices sent throughout a financial year, a registered person can now issue a consolidated credit note.