What is Credit Note?

A credit note is a document that a registered supplier issues to a recipient under Section 34 of the CGST Act, 2017, when the taxable value or tax charged in an original tax invoice needs to be reduced — typically because goods are returned, services are found deficient, a discount is given after supply, or the original invoice overstated the value or tax.

• Goods supplied are returned by the recipient, in full or in part.
• A post-supply discount is given that was not known at the time of the original invoice (and meets conditions under the Act to be deducted from taxable value).
• The taxable value or tax charged on the original invoice is found to be higher than what should have been charged.
• Deficiency is found in the goods or services supplied.

• The supplier must declare the credit note in their GSTR-1 for the period in which it is issued, and it reduces the supplier's output tax liability for that period, subject to the time limit prescribed under the Act.
• If the recipient has already claimed input tax credit on the original invoice, they generally need to reverse the proportionate ITC corresponding to the credit note.

• Not reporting a credit note in GSTR-1, leaving the supplier's output liability overstated.
• Missing the statutory time limit within which a credit note affecting tax liability can be issued for a financial year.
• Recipients forgetting to reverse ITC corresponding to a credit note received from a supplier.