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Credit Note

Last updated on 26 July, 2018

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What is a credit note?

When the cost of goods or services supplied (or the tax amount levied on them) that is furnished in a tax invoice is higher than the actual chargeable rate, the supplier issues a credit note to the recipient. The credit note allows the supplier to credit the corresponding amount to the client’s account. For example, this could be done for a return of goods, where the value of the goods is credited back to the customer’s account. 

When is a credit note issued under GST?

A credit note is issued when:

Note: When a credit note is issued, it must be accompanied by a supplementary invoice. A supplementary invoice is issued whenever there are errors in the original tax invoice.

Format of a credit note in GST

Based on the rules prescribed by the Government, here is what a sample credit note will contain under the GST regime: 

Credit Note

Tax liability

The tax liability of the supplier is reduced if the credit note matches with the following:

When the supplier’s claim for reduction in output tax liability matches with the corresponding reduction in the claim for input tax credit made by the recipient, the government will accept the claim and inform the supplier.  

The supplier cannot claim reduction in tax liability with credit notes, if the tax and interest applied on the transactions have been transferred to another person. 

Procedure

When the supplier files their returns for the month, they should mention details of any credit notes issued during the month. Their tax liability will be adjusted accordingly. It should be noted that the supplier will not be allowed reduction in output tax liability for a transaction, if the tax and interest of that transaction is passed on to another registered person.

Time limit

The supplier should declare the details of the credit note in their tax returns for the month in which the credit note was issued.

The credit note details should be furnished either by the September following the financial year in which the sales transaction occurred, or by the date of filing of the relevant GSTR-9 annual return, whichever is earlier. 

Maintaining records

All information and records related to a credit note must be preserved and accessible both physically and digitally until their expiry, which is 72 months from the date of providing the relevant annual returns.

 



       
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