What is a Credit Note under GST?
A Credit Note is a document issued when the amount of payment to be received by the seller from the buyer reduces. Under GST, the seller should issue a credit note in the following cases:
1) Value of the invoice reduces
A seller might have made a mistake while issuing an invoice to the buyer. If there is an error while entering the price, quantity or tax amount in the original invoice, correction can be done by issuing a credit note. Thus, when the value of the invoice reduces after correction of the error, the seller should issue a credit note.
Tax Invoice No.1 was issued for Rs.1000 (10 units * Rs.100). If the revised price is Rs.90, a credit note of Rs.100 (10 units * Rs.10) would be issued. Thus, the buyer is liable to pay Rs.900 (10 units * Rs.90) to the seller
2) Sales Return or deficiency in services provided
When the buyer returns goods to the seller or when the buyer is not satisfied with the services provided by the seller, a credit note can be issued by the seller to the buyer.
Mr.A sells goods to Mr.B for Rs.10,000 (50 units * Rs.200). Mr.B returns 20 units due to poor quality. Mr.A will issue a Credit Note of Rs.4000 (20 units * Rs.200) to Mr.B. Thus, Mr.B is liable to pay Rs.6,000 (30 units * Rs.200) to Mr.A.
The details of the Credit Note once issued must be declared at the earliest of the following:
- GST Return for the month in which Credit Note is issued
- September following the end of the year in which such supply was made
- Date of filing Annual Return
Sample Credit Note