Credit Note Disclosure In GSTR 9 Annual Return Filing

What is a Credit Note?

A credit note is a document issued by one party to confirm that they have credited the other party’s account in their records. If there is a reduction in the taxable value of the goods after the supplier issues the tax invoice, they may issue a credit note with the required details.

It acts as an alternative to a refund, allowing the customer to purchase products later without additional payment. A debit note reduces the buyer's liability, and the seller issues the credit note to acknowledge the debit note raised by the buyer.

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Why is a Credit Note Issued?

Section 34(1) of the CGST Act allows suppliers to issue a credit note when a tax invoice needs to be amended to reduce the tax liability. Common reasons for issuing a credit note include:

• Sales returns due to quality issues, service rejection, or damaged goods.
• Overcharging or buyer paying more than the invoiced amount.
• Offering a post-sale discount.
• Delivery of a lower quantity than what was stated on the invoice.
• Cancelling pending payments against invoices.
• Other similar reasons.

Credit notes issued during the month must be reported in the GSTR-1 of that month. Any changes to previously issued credit notes should also be reflected in the monthly GSTR-1. These details will automatically appear in the recipient's GSTR-2B and GSTR-2A.

Issuing a credit note allows suppliers to adjust their original tax invoice and reduce their tax liability without the hassle of claiming refunds. Additionally, all debit and credit notes under Section 34 must be reported to the IRP for e-invoicing.

Conditions for issuing a credit note under GST:

• It must be issued within the specified time limits (covered in the next section).
• It must reference the original invoice number, though this linking is not required under the new system.

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What is the Process of Issuing a Credit Note?

The process of issuing a credit note can be explained with the following example:

1. Supplier A sells goods to Buyer B and provides a tax invoice.
2. Buyer B notices quality issues with the goods and returns them, issuing a debit note.
3. Supplier A accepts the debit note and issues a credit note as an acknowledgment to Buyer B.

This credit note adjusts the original transaction and reduces the amount owed by Buyer B.

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What is the Time Limit to Issue a Credit Note?

There is no specific time limit for issuing a debit note or credit note. However, these documents must be reported in the GST returns for the month in which they are issued.

According to GST law, the maximum time limit for declaring debit or credit notes related to a particular financial year is the earlier of the following:

• 30th September of the year following the year in which the supply was made.
• The actual date of filing the annual return for that financial year.

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What is the Format of a Credit Note?

While there is no legally prescribed format for a credit note, it must include the following information:

Components of a Credit Note:

1. Business Name, Address, and GSTIN of the supplier.
2. Document Type (indicate whether it is a credit note or debit note).
3. Unique Serial Number (up to 16 characters, which can be numeric, alphabetic, alphanumeric, or include special characters).
4. Date of Issue of the credit note.
5. Buyer’s Business Name, Address, and GSTIN.
6. Taxable Value of Supply, rate, tax, and the amount of tax credit given to the buyer.
7. The signature of the supplier or an authorized representative is required.

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What are the Steps to Create a Credit Note?

A credit note can be easily created using Excel, Word, or any invoicing software. Follow these steps to create a credit note:

1. Select a Credit Note Template to use for consistency.
2. Add the Business Logo to personalize the document.
3. Enter the Date of Issue and assign a Unique Credit Note Number.
4. Include the Invoice Reference Number corresponding to the original invoice.
5. Input the GSTIN of the Supplier and Customer, along with the place of supply.
6. Save the Credit Note for record-keeping and future reference.

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How to report Financial Credit Note in the Annual Return?

Section 34 of the CGST Act specifies the credit notes for which a disclosure is required in the annual return. Financial Credit notes not being part of the same does not attract any disclosure requirement nor GST provisions are applicable on them. Hence, they are not required to be reported under GSTR 1 or 3B or 9/9A.
Still financial credit note might form part of GTSR 9C as they adjustments might be required for reconciling books of accounts and Goods and Service Tax Returns filed for the period.

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Disclosure requirements for registered and unregistered persons?

The taxpayers are required to make separate disclosures in the annual return is required for credit notes issued to registered and unregistered persons.

• Registered – As B2B supplies in Table 4(I)
• Unregistered – As B2C supplies (net off values) in Table 4(a)

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B2C Supplies Disclosure Requirement

B2C, i.e., Business to customer supply, and B2B, i.e., Business to Business supply, shall be bifurcated.

Yes, in GSTR-9, which is the annual return under GST, the disclosure of B2C supplies is required under two different categories:

1. B2C Large Supplies (exceeding ₹2.5 lakhs): These supplies need to be disclosed separately under Table 5A (for outward taxable supplies other than zero-rated, nil-rated, and exempt) if they were made to unregistered persons where the value of the supply is more than ₹2.5 lakhs for each invoice. This is applicable for inter-state supplies.
2. Other B2C Supplies: These are the remaining B2C supplies where the value per invoice does not exceed ₹2.5 lakhs. They are reported under Table 5D (for supplies to unregistered persons) in the case of inter-state supplies and Table 7 (for intra-state supplies) for others.

The separation helps in providing clarity on large transactions versus smaller transactions in the B2C category.

A credit note is an integral document that GST-registered suppliers are required to issue and report in GSTR-9, i.e., the annual return. If you are someone who finds taxes complicated or needs help with GST or income tax, you can simply get in touch with our tax experts. Our experts are highly experienced and can help you with GST registration, GST filing, income tax planning, ITR filing, etc. Book an expert now!

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