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It is mandatory for a GST-registered supplier of goods or services to issue a tax invoice. However, suppose circumstances arise during the business, which leads to the reduction in taxable supply value. In that case, the supplier must issue a credit note or credit memo or credit memorandum or credit invoice.
A credit note is a document given by one party to another mentioning that the sender credits the other party’s account in his books. After the supplier’s issue of the tax invoice, if there is any reduction in the taxable value of the goods supplied, he may issue a credit note mentioning the prescribed particulars.
It is not precisely a refund but acts as a replacement for a refund wherein the customer can buy the products later without paying for them. A debit note reduces the buyer’s liability, and the seller issues the credit note as an acknowledgement to the debit note raised by the buyer.
Section 34(1) of the CGST Act says that when a tax invoice is issued, and the same is required to be amended to reduce the tax liability mentioned in it, the supplier can issue a credit note. Some of the common reasons for which the seller issues a credit note are:
All the details of credit notes issued during the month should be submitted in GSTR-1 of the respective month. The credit note generated earlier can be amended, and the same should be reported in the monthly GSTR-1. Corresponding details will automatically reflect in the GSTR-2B and GSTR-2A of the recipient.
It is a convenient way by which a supplier can amend his originally issued tax invoice. He can easily reduce his tax liability without going through any tedious task of claiming refunds. Also, all the debit notes and credit notes issued under section 34 of the CGST Act need to be reported to the IRP for e-invoicing.
Conditions for the issue of a credit note under GST are:
The process of issue of the credit note is explained by way of the below example:
The below flowchart illustrates the same-
There is no time limit for the issue of a debit note or a credit note. Issue of debit notes and credit notes should be declared in the GST returns filed for the month in which such a document is issued. GST law mentions the maximum time limit for declaring the same in GST returns if it pertains to a particular financial year. It should be declared on earlier of the below dates:
There is no prescribed credit note format under any law, but the supplier must contain the below information in a credit note.
Contents of a credit note
Below are the contents of a credit note:
A credit note can be created in excel, word, or any other software used for invoice creation by the business organisation. Below are the steps to create a credit note:
Debit notes and credit notes can be created easily using ClearOne software. Below are some of the features of ClearOne software: