Credit note is issued when a supplier need to reduce the value of an invoice already issued.
It may be issued in situations where:
- Goods are returned by the recipient.
- There is a discount or rebate post-invoice issuance.
- The invoice contains incorrect details, such as excess GST charged.
Key Amendments from 55th GST Council Meeting
The amendments are related to credit notes for ensuring proper adjustments of tax liabilities for both suppliers and recipients.
Reversal of ITC by Recipient (Section 34(2))
- If a supplier issues a credit note to adjust the value of a supply (such as due to returns or discounts), now the recipient required to reverse the ITC that corresponds to the credit note.
It means – The supplier can reduce their output tax liability only when the recipient reverses the claimed ITC, maintaining tax parity.
Adjustment of Supplier’s Tax Liability (Rule 67B)
- A new Rule 67B will detail how the supplier’s output tax liability should be adjusted against the credit note.
- This rule will formalize the procedure, making it easier to compute and reconcile such adjustments systematically.
Example
Scenario
Suppose Mr. Anand sold goods to Mr. Varun amounting ₹2,36,000 (including GST)
Good amounting ₹23,600 (including GST) returned by Mr. Varun.
For this Mr. Anand will issue a credit note amounting 23,600 (including GST).
Mr. Anand issues a credit note for ₹23,600 and reports it in Table 9B of GSTR-1.
Impact on Mr. Varun after the amendment
Now, Mr. Varun required to reverse ITC proportionate to the credit note to make Mr. Anand eligible to reduce output tax liability.
How Recipient will reverse the ITC?
Credit Note in IMS
The credit note will reflect in IMS and FORM GSTR-2B.
ITC Reversal in GSTR-3B
Recipient have to accepts the data from IMS.
Need to reverse ITC in Table 4(B) of GSTR-3B under “ITC Reversed”.
Conclusion
Credit notes will now require ITC reversal by the recipient for supplier’s tax liability reduction.
IMS simplifies credit note reporting and ensures alignment with GSTR-2B and GSTR-3B.