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Credit Note: Everything you need to know

[ecis2016.org] Read on know all about credit note, how to create a credit note and the process of issuing a credit note.

Every GST registered supplier needs to issue a tax invoice in exchange for the services purchased by the customer. If there is a reduction in the taxable value of the goods bought after issuing the tax invoice, then the supplier issues a credit note.

Credit note meaning

A credit note is an official document stating that the sender credits the other party in his account books. It helps clear out discrepancies that arise after the reduction in the taxable amount of goods bought by a party after issuing a tax invoice.

It acts like a refund wherein the buyer can buy goods later without paying for them by showing the credit note. Credit notes have simplified transactions and made the returns and purchases process easier.

Credit note: Contents and format

There is no official format for a credit note, but the note should contain the following information:

  • Name, address and GSTIN of the supplier
  • Type of document – debit or credit note
  • The serial number must be unique and contain 16 characters. The characters can be numeric, alphanumeric or even special.
  • Date of issue
  • The taxable value of supply, rate, tax and amount of tax credit to the buyer
  • Signature of the supplier

Creating a credit note

The following steps need to be followed to create a credit note: 

  • Choose the template to be used.
  • Update the business logo
  • Add the date of issue, serial number of the credit note.
  • Add the invoice number against which the credit note is issued.
  • Add the GSTIN of the supplier, along with the place of supply.
  • Save the note.

Reasons for issuing a credit note

There can be various reasons for issuing a credit note, like: 

  • On account of sales returned by the buyer due to faulty goods or service rejection.
  • Giving a post-sale discount to a buyer.
  • The buyer accidentally paid more money, or the seller collected more money than required.
  • The quantity received by the customer is less than the billed amount.
  • Cancelling any pending payments against invoices.
  • Other similar reasons.

All details of credit note issues should be mentioned in the GSTR-1 of the respective month. In the case of amending credit notes, the same should also be mentioned in GSTR-1 of the respective month. This will automatically reflect in GSTR-2A and GSTR-2B of the recipient.

All the credit and debit notes issued under section 34 of the GST act need to be reported to IRP for e-invoicing.

Conditions for issuing credit notes:

  • It should be issued within time limits.
  • It should have the invoice number against which it is issued. However, under the new system, such linking may not be required.

Process of issuing a credit note

The following process usually occurs during issuing of a credit note.

  • The buyer buys some goods from the seller.
  • The buyer is not satisfied with the quality, and quantity or has other reasons for returning the goods and issues a debit note.
  • The seller issues a credit note in response and acknowledgement of the debit note.

Time limit to issue a credit note

There is no time limit to issue a debit or credit note. The issuing should be mentioned in the GST register for the respective month. The same should be reflected in the GST returns in the same financial year itself. 

It can be declared on the following dates: 

  • September 30th of the following year of the purchase.
  • The date of filing the annual returns for the financial year.

Source: https://ecis2016.org/.
Copyright belongs to: ecis2016.org

Debora Berti

Università degli Studi di Firenze, IT

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