Credit Note under GST – Sec 34 – Simplified

Credit note serve as a record of the adjustment to the buyer’s account and are often used in accounting to reconcile transactions and maintain accurate financial records. Before we finalize our books of accounts for the FY 2023-24, we must remember to take into account the adjustments to our accounts receivable or payable as failing to incorporate credit and debit notes, wherever necessary, can lead to discrepancies, affecting the financial statements, tax filings, and overall financial health. We will now elaborate on the credit note meaning, circumstances of issuance, examples, entries in Tally and reporting in the GST returns.

Credit Note Meaning

A credit note is a document issued by the supplier to the recipient in case where the actual supply of the value of goods or services or both is lesser than the invoice previously raised by the supplier. For instance, in case of sales return of goods on account of deficient supply, instead of cancelling the invoice and raising a fresh one, a credit note is issued to record this transaction. The method of using it for recording such returns is the best way to keep a track of all adjustments.

Issuance of Credit Note u/s 34(1)

Where the supplier has raised one or more invoices for supply of goods or services or both and

• The taxable value in the tax invoice is in excess of the taxable value of such supply, or
• The tax charged in the tax invoice is in excess of the tax chargeable for such supply, or
• Goods are returned by the recipient, or
• Goods or services or both supplied are found to be deficient,

then the registered supplier of such goods or services or both issues to the recipient credit note for adjustment of such supplies.

Reasons for issuance of credit note

A credit note is usually issued by the supplier in the following circumstances:-

• Cases of sales return
• Erroneously higher tax had been charged in the original invoice
• Post-sale discount given to the buyer
• The actual quantity supplied was less than the quantity mentioned in the original invoice.

Time limit for issuance u/s 34(2)

A registered supplier can issue a credit note in relation to a supply of goods or services or both in the return for the month during which such credit has been issued but not later than A registered supplier can issue this in relation to a supply of goods or services or both in the return for the month during which such credit has been issued but not later than 30^th September of the year following the end of the financial year.

Contents of a credit note

As per Rule 53(1A), a credit note should contain the following details for it to be a valid document:-

• Details of the supplier – Name, address and GSTIN
• Details of the recipient if registered – Name, address and GSTIN
• Details of the recipient if unregistered – Name, address of delivery, name of State and its code
• Nature of the document
• A consecutive serial number and date of issue
• Serial number of date of issue of the corresponding original tax invoice or bill of supply
• Value of taxable supply of goods or services or both, rate of tax and amount to be credited
• Signature or digital signature of the supplier or his authorized representative.

Conditions for validity of a credit note

A credit note will be considered a valid document only if it is issued and reported within the time specified and the original invoice number is mentioned in the note.

Credit Note Example

ABC Ltd., a registered supplier has made the following sales to its customer XYZ Ltd. during the month of April, 2023:-

Invoice No. 10 dated 02.04.2023 – 20 jackets for an invoice value of Rs. 10,000,

Invoice No. 15 dated 03.04.2023 – 10 shirts for an invoice value of Rs. 5,000,

Invoice No. 20 dated 05.04.2023 – 10 trousers for an invoice value of Rs. 7,000.

However, XYZ Ltd. has returned 5 jackets, 5 shirts and 2 trousers to ABC Ltd. for quality reasons.

Q1. How will the supplier record this sales return?

A1. The supplier, ABC Ltd., will issue a credit note for the returned goods and report the same in GSTR – 1 for the month of April, 2023.

Q2. Can the supplier issue a consolidated credit note?

A2. Yes, a consolidated credit note can be issued in respect of multiple invoices issued in a financial year.

How to generate a credit note in Tally Prime?

The supplier can issue a credit note in Tally Prime by following the steps explained below:-

• Go to Vouchers

• Select Credit Note voucher (Shortcut key Alt+F6)
• Enter details of the recipient
• Enter the linked ledger as the Sales Ledger

• Enter the details of the goods returned
• While entering the details of the returned goods, mention the original invoice details

• Generate the voucher.

How to report credit note in the GST returns?

The credit note issued by the supplier must be reported by the supplier in his GSTR – 1 for the same month in Table 9B.

If issued to registered persons, it has to be reported in Table 9B (for registered).

If issued to unregistered persons, it hasto be reported in Table 9B (for unregistered).

Circular No. 72/46/2018 – Clarification on procedure in respect of return of time expired drugs or medicines

In the pharmaceutical sector, the common practice is that drugs or medicines are sold by the manufacturers to the wholesalers, from wholesalers to the retailers and from the retailers to the end customers. However, since the shelf life of the medicines is usually a few months, the drugs often get expired and have to be returned back to the original manufacturer in the supply chain.

As per the Circular No. 72/46/2018 dated 26.10.2018, it has been clarified that the wholesaler/retailer has the following 2 options to return back the time expired goods:-

• Return of the time expired goods to be treated as a fresh supply

The registered person returning the time expired goods may, at his option, return the goods by treating it as a fresh supply and thereby raising an invoice for the same.

• Return of the time expired goods by issuing a credit note

The registered person returning the time expired goods may, at his option, return the goods by issuing a credit note within the time limit as per Section 34(2).

FAQs

Q1. For how long do we need to maintain records of credit notes?

A1. All the information and related records of a credit note has to be maintained both physically and digitally for 72 months from the date of filing the annual returns.

Q2. Can a credit note be issued by the recipient?

A2. No, it can be issued by a registered supplier only. It is a unidirectional flow from the supplier.