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September 2, 2020

All you need to know about Credit and Debit Notes under GST

by CA Shivam Jaiswal in GST, GST Circular Notification

All you need to know about Credit and Debit Notes under GST

A supplier of goods or services or both is mandatorily required to issue a tax invoice. However, during the course of trade or commerce, after the invoice has been issued there could be situations like:

  • The supplier has erroneously declared a value which is more or less than the actual value of the goods or services or both provided.
  • The supplier has erroneously declared a lower or higher tax rate than what was applicable for the kind of the goods or services or both supplied.
  • The quantity received by the recipient is more or less than what has been declared in the tax invoice
  • The quality of the goods or services or both supplied is not to the satisfaction of the recipient thereby necessitating a partial or total reimbursement on the invoice value.
  • Any other similar reasons

In order to regularize these kinds of situations the supplier is allowed to issue a credit note or a debit not as applicable to the recipient.

What do you mean by a Credit Note?

Where a tax invoice has been issued for supply of any goods or services and the following situations arise:-

  • taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply
  • goods supplied are returned by the recipient
  • goods or services supplied are found to be deficient

then the registered person, who had supplied such goods or services, may issue to the recipient a credit note containing the prescribed particulars.

Is there a time limit for issuance of Credit Note?

Any registered person who issues a credit note in relation to a supply of goods or services shall declare the details of such credit note in the return for the month during which such credit note has been issued which shall be earlier of:-

  • On or before the 30th of September following the end of the financial year in which such supply was made, or
  • Date of filing of the relevant annual return

What are the effects of issuing a Credit Note?

The output tax liability of the supplier gets reduced once the credit note is issued and it is matched.

How does the concept of matching work in Credit Notes?

  • The details of the credit note relating to outward supply furnished by the supplier are 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.
  • The claim for reduction in output tax liability by the supplier that matches with the corresponding reduction in the claim for input tax credit by the recipient shall be finally accepted and communicated to the supplier.
  • The reduction in output tax liability of the supplier shall not be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.

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What will happen if the details of the credit note do not match with the input tax credit claimed by the recipient?

  • Where the reduction of output tax liability in respect of outward supplies exceeds the corresponding reduction in the claim for input tax credit or the corresponding credit note is not declared by the recipient in his valid returns, the discrepancy shall be communicated to both such persons.
  • Whereas, the duplication of claims for reduction in output tax liability shall be communicated to the supplier.
  • The amount in respect of which any discrepancy is communicated and which is not rectified by the recipient in his valid return for the month in which discrepancy is communicated shall be added to the output tax liability of the supplier in his return for the month succeeding the month in which the discrepancy is communicated.
  • The amount in respect of any reduction in output tax liability that is found to be on account of duplication of claims shall be added to the output tax liability of the supplier in his return for the month in which such duplication is communicated.

What do you mean by a Debit Note?

When a tax invoice has been issued for supply of any goods or services and the taxable value or tax charged in that tax invoice is found to be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services, shall issue to the recipient a debit note containing the prescribed particulars.

Is there a time limit for issuance of Debit Note?

Any registered person who issues a debit note in relation to a supply of goods or services or both shall declare the details of such debit note in the return for the month during which such debit note has been issued.

What are the effects of issuing a Debit Note?

The issuance of a debit note creates additional tax liability. The treatment of a debit note would be identical to the treatment of a tax invoice as far as returns and payment are concerned.

Does the Credit Note or Debit Note have a prescribed format?

There is no prescribed format but credit note or debit note issued by a supplier must contain the following particulars:

  • name, address and GSTIN of the supplier
  • nature of the document
  • a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year
  • date of issue
  • name, address and GSTIN or Unique Identity Number, if registered, of the recipient
  • name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered
  • serial number and date of the corresponding tax invoice or bill of supply, as the case may be
  • value of taxable supply of goods or services, rate of tax and the amount of the tax credited to the recipient
  • signature or digital signature of the supplier or his authorised representative.

For how long should the records pertaining to Credit and Debit Notes be retained?

  • The records of the credit notes or debit notes have to be retained until the expiry of 72 months from the due date of furnishing of annual return for the year pertaining to such accounts and records.
  • Where such accounts and documents are maintained manually, it should be kept at every related place of business mentioned in the certificate of registration and shall be accessible at every related place of business where such accounts and documents are maintained digitally.

Credit notes and Debit Notes are a convenient and legal method by which the value of the goods or services in the original tax invoice can be amended or revised without the supplier undertaking any tedious process of refunds

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