How and When to Issue Credit Note under GST?
We have learnt about the scenarios in which a supplier should issue a Debit note in our previous blog. Debit Notes and Credit notes are instruments used to record the cancellation or modification of a supply for which Tax Invoice or Bill of Supply has already been issued. In this blog, let us understand the scenarios in which a supplier should issue a credit note under GST.
When to issue Credit Note under GST
A person supplying goods or services should issue a credit note in the following scenarios:
a. Supplies are returned or found to be deficient by the recipient
When goods supplied are returned by the recipient or goods/services supplied are found to be deficient by the recipient, the supplier should issue a Credit Note. The credit note serves the purpose of reducing the value of the original supply.
For example: Mohan Apparels in Delhi supplies 100 shirts @ Rs. 1,000 each to Rakesh Garments in Delhi. CGST @ 6% (Rs. 6,000) and SGST @ 6% (Rs. 6,000) are charged. 10 shirts are returned by Rakesh Garments due to the shirts getting damaged during transit.
Here, Mohan Apparels should issue Rakesh Garments a credit note for the return of 10 shirts. On the value of shirts returned, i.e. Rs. 10,000 (10 units @ Rs. 1,000 each), CGST @ 6% (Rs. 600) and SGST @ 6% (Rs. 600) is to be reversed.
This will result in reduction in the original value of supply, resulting in reduction in the tax applicable on the supply.
b.Decrease in taxable value
When a supplier requires to decrease the taxable value of a supply, he/she has to issue a credit note to the recipient.
For example: Mohan Apparels in Delhi supplies 100 shirts @ Rs. 1,000 each to Rakesh Garments in Delhi. CGST @ 6% (Rs. 6,000) and SGST @ 6% (Rs. 6,000) are charged. On a later date, Mohan Apparels informs Rakesh Garments that if they make the payment for the supply in cash, they will give them a discount of 1% on the value of the shirts. Accordingly, Rakesh Garments makes the payment in cash.
Here, to record the discount given to Rakesh Garments after the supply, Mohan Apparels will issue a credit note. The credit note will be for the discount of Rs. 1,000 (1% on total value of Rs. 1,00,000). On Rs. 1,000, CGST @ 6% (Rs. 60) and SGST @ 6% (Rs. 60) will be reversed.
c. Decrease in GST charged in invoice
When a supplier requires to decrease the rate or value of GST charged in an invoice, he/she has to issue a credit note to the recipient.
For example: Mohan Apparels in Delhi supplies 100 shirts @ Rs. 1,000 each to Rakesh Garments in Delhi. Due to a mistake in data entry, Mohan Apparels charges CGST @ 9% (Rs. 9,000) and SGST @ 9% (Rs. 9,000) on the supply. They later realise that tax has been charged in excess in the invoice and CGST & SGST @ 6% each was applicable on the supply.
Here, Mohan Apparels will issue a credit note to Rakesh Garments. The credit note will be for the amount of tax charged in excess, i.e. CGST of Rs. 3,000 and SGST of Rs. 3,000.
Time limit for issuing Credit Note
A supplier can issue a credit note against a Tax Invoice on or before 30th September of the next financial year or the date of filing of annual return pertaining to the Tax Invoice, whichever is earlier.
You can understand this time limit for issuing a credit note in detail in our blog ‘All you need to know about invoicing under GST’.
How to issue Credit Note under GST
A credit note format sample under GST is shown below:
Furnishing details of Credit Note
The details of credit notes issued in a month should be furnished by suppliers in Form GSTR-1 in Table 9 as shown below:
The recipient of the supply will receive these details in Form GSTR-2A as shown below:
The recipient has to accept the details and submit in Form GSTR-2. A point to note here is that a supplier will be allowed to reduce his tax liability via a credit note only if the recipient of the supply accepts the credit note details in Form GSTR-2. Once this is done, the recipient’s input tax credit (ITC) will be reversed to the extent of the credit note and the supplier’s tax liability will also be correspondingly reduced.
A credit note can also be issued by the recipient of a supply in cases such as when the taxable value shown in an invoice for an inward supply is less than the actual or tax charged for an inward supply is less than the actual. However, in these cases, revision in the values of an invoice will only be considered when a supplier issues a corresponding debit note for the supply. The details of debit note issued have to be furnished by the supplier and the same have to be accepted by the recipient. Subsequently, the tax liability of the supplier and input tax credit of the recipient will be modified accordingly.
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