A Credit Note is a document issued when there is a reduction in the amount of payment to be received by the seller from the buyer. Under GST, the seller should issue a credit note in the following cases:
1) Value of the invoice reduces
In some cases, a seller might have made a mistake while issuing an invoice to the buyer. But, there’s nothing to worry about, as an error while entering the price, quantity, or tax amount in the original invoice, correction can be done by issuing a credit note. Thus, the seller should issue a credit note when the value of the invoice reduces after correction of the error.
Tax Invoice No.1 was issued for Rs.1000 (10 units * Rs.100). Hence, 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
A credit note can be issued by the seller to the buyer if the buyer returns goods to the seller or when the buyer is not satisfied with the services provided by the seller
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 following details of the Credit Note once issued must be declared at the earliest:
- 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
It is important to note that Credit Notes are only issued to adjust the taxable value and not issued for adjusting tax in the books of accounts. However, the Tax liability of the supplier cannot be adjusted if the credit note is issued after the due date.
Yes there is a time limit. Section 34(2) of the CGST Act dictates that a registered person is allowed to issue the credit notes for the supplies made in a Financial Year up to 30th November of the subsequent year.