Credit note /Debit note Under GST

Credit note /Debit note

• Credit Notes: If a supplier issues a tax invoice and later finds that the taxable value or tax charged was too high, or if the goods are returned or found to be deficient, they can issue a credit note. This adjusts the taxable value or tax downward. The supplier must report this credit note in the tax return for the month it was issued, but no later than November 30th following the end of the financial year or the date of filing the annual return, whichever comes first. However, if the tax and interest were passed on to someone else, the supplier can’t reduce their tax liability.
• Debit Notes: If a tax invoice shows a taxable value or tax that is too low, the supplier should issue a debit note to adjust it upward. The details of the debit note must be included in the tax return for the month it was issued.
• Definition: The term “Debit note” also includes a supplementary invoice
• Eligibility for ITC: Registered persons can claim input tax credit on any goods or services used for their business if they follow the prescribed conditions. This credit is added to their Electronic Credit Ledger.
• Conditions for Claiming ITC:

• Tax Invoice or Debit Note: The person must have a tax invoice or debit note from a registered supplier. The supplier’s details must be included in the outward supplies statement, and the recipient must have received these documents.
• Receipt of Goods/Services: The goods or services must be received. For goods delivered to someone else on the recipient’s behalf or services provided as directed, this condition is met.
• Payment of Tax: The tax on the supply must be paid to the government, either in cash or using available input tax credit.
• Filing of Returns: The recipient must have filed the necessary returns.

Special conditions apply if goods are received in multiple shipments; credit can be claimed after receiving the last shipment. If payment to the supplier is not made within 180 days of the invoice date (except for reverse charge supplies), the ITC must be reversed with interest. Conversely, ITC can be claimed upon payment to the supplier.

• Depreciation: If a registered person has claimed depreciation on the tax component of capital goods under income tax laws, they cannot claim ITC on that component.
• Time Limits:

• ITC must be claimed by the 30th of November following the end of the financial year of the invoice or before filing the relevant annual return, whichever is earlier.
• There are specific provisions for claiming ITC for invoices related to financial years 2017-18 to 2020-21 by November 30, 2021.
• If a person’s registration is canceled but later reinstated, they can claim ITC for invoices dated before the cancellation if certain conditions are met and within specific timeframes.

Time limit of Credit note declaration on GST portal Credit note to be declared in return not later than 30th Nov following the end of the financial year in which supply was made. After that the benefit of tax reduction not allowed in GSTR-1

Debit note to be declared in return not later than 30th Nov following the end of the financial year in which supply was made. After that ITC can  not be added in GSTR-2B

Some further clarification for issue a credit note  

1. Free Samples and Gifts:

• Taxability: Goods or services provided free of charge (like drug samples) are generally not considered a supply under GST unless they fall under activities listed in Schedule I of the GST Act.
• Input Tax Credit (ITC): No ITC is available for inputs used to produce goods given as free samples or gifts unless the distribution falls under Schedule I. If it does, ITC can be claimed.

1. Buy One Get One Free Offers:

• Taxability: Offers like “Buy One, Get One Free” are not seen as free supplies. Instead, they are considered as providing multiple items for a single price. This is treated as a single supply of goods at a single price.
• ITC: ITC is available on inputs used to produce goods under such offers. The taxability depends on whether the supply is a composite supply or a mixed supply.

1. Discounts (including “Buy More, Save More”):

• Discounts on Invoice: Discounts provided at the time of purchase (like volume discounts) and reflected on the invoice are deducted from the value of supply. ITC is available on inputs related to these supplies.
• Post Supply Discounts: Discounts given after the supply is made (like year-end discounts) should be reflected through credit notes. These do not affect the value of the supply for GST purposes but ITC is still available.

1. Secondary Discounts:

• Post-Supply Adjustments: Discounts or adjustments made after the supply (e.g., issuing credit notes for a price reduction) are treated as commercial transactions. These adjustments do not affect the value of supply for GST purposes.
• ITC: ITC remains unaffected by secondary discounts or credit notes issued for commercial reasons.