CREDIT NOTE AND DEBIT NOTE UNDER GST REGIME

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CREDIT NOTE AND DEBIT NOTE UNDER GST REGIME

12/03/2021

CREDIT NOTE AND DEBIT NOTE UNDER GST REGIME

A Credit Note and Debit Note for the purpose of GST Law, can be Issued by the Registered Person who has issued the tax Invoice i.e. The Supplier.

If any other Such Document, by whatever name called (Debit Note or credit Note) when issued by the recipient to the registered supplier, will not be considered any document under GST Law.

First we understand the definition of credit note-

Section 2(37) “credit note” means a document issued by a registered person under sub-section (1) of section 34; Meaning Thereby-

Credit note is issued when Supplier wants to give money to the recipients (means supplier (issuer of tax invoice) has to give money to recipients)

EXAMPLE

When a cash discount is allowed at the time of collecting payment from a customer in terms of an agreement entered in to prior to the supply, then supplier will issue a credit note to the customer to the extent of such cash discount.

In case of sales return also Credit Note can be issued by the supplier.

TIME LIMIT FOR ISSUING CREDIT NOTE

1. The supplier can issue the credit note in respect of a tax invoice which has been issued by him earlier.

Credit Note should be issued by earlier of the following dates:

1. Date of filling of Annual return in which the Original Tax Invoice was issued; OR

2. 30th September of the FY immediately succeeding the FY in which the original Tax Invoice was issued.

The Credit Note so issued must be declared in the returns for the month in which they are issued, by the supplier and by the recipient both (Means by Buyer and Seller Both) as per the above mentioned date.

The recipient must claim a reduction in ITC if he has claimed the same against the Original Tax Invoice. (In 3B)

Credit Note can also be issued if Tax charged in the Original Tax Invoice is higher than that tax Applicable on the Actual Value Supply.

The GST Law provides an exhaustive list of situations under which the registered supplier is entitled to issue a credit note says, ‘I OWE’ and issues credit note:

1. Actual value of supply is lower than that stated in the original tax invoice;

2. Tax charged in the original tax invoice is higher than that applicable on the supply;

3. Goods supplied are returned by the recipient;

4. Goods or services supplied are deficient.

Provision of section 34 pertaining to credit note

(1) Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed

(2) Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:

Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.

DEBIT NOTE: Sec 2(38) Definition- “debit note” means a document issued by a registered person under sub-section (3) of section 34; Meaning Thereby Debit Note is issued when Supplier wants to receive money from the recipients (means supplier (issuer of tax invoice) has to receive money from recipients)

EXAMPLE

If the supplier charges a penalty for the delayed payment of consideration , the supplier would issue a debit note for the amount of Penalty

Debit Note will be issued when tax charged in the original tax Invoice is lower than that tax applicable on the Actual supply (Value of Original tax invoice + value of Debit Note).

To this Extent the GST thereon would also stand Increased.

Actual Value of supply is higher than that value stated in the original tax Invoice in case of Debit Note.

TIME LIMIT FOR ISSUING DEBIT NOTE

No time limit has been prescribed for issuing a Debit Note.

The reason behind that is if a debit note is issued it will increase the value of supply and If value of supply will increase it will also increase the value of tax (GST) So, it will be beneficial for the Government due to which there is no time limit for Issuing the Debit Note.

Provision of section 34 Debit note

(3) Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient one or more debit notes for supplies made in a financial year containing such particulars as may be prescribed.

(4) Any registered person who issues a debit note in relation to a supply of goods or services or both shall declare the details of such debit note in the return for the month during which such debit note has been issued and the tax liability shall be adjusted in such manner as may be prescribed.

Explanation.––For the purposes of this Act, the expression “debit note” shall include a supplementary invoice.

CONCLUSION:

Debit Note will benefit the government in terms of Tax Collection but Credit Note will cause to reduce the tax liability So, Government has specified the time limit for issuing a Credit Note but has not specified the time limit for issuing a debit note.