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What is a credit note?
A registered seller must provide an invoice with the product sold to a customer. This tax invoice acts as a corroboration between the buyer and the seller. Sometimes these invoices which are discharged at the time of the transaction need changes. Due to several reasons, these issued invoices demand changes in them and here is exactly where credit notes come into the role.
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Credit Note in GST
In case of damaged products, incorrect invoice, cancellation of purchase and other inconvenient circumstances arise, a credit note is issued by the supplier to indicate the acknowledgement of a creditable amount to be returned to the buyer. It is issued when discrepancies like dissatisfaction of customers, increase or decrease in the price of goods and services, error while generating the invoice, the tax charged exceeds the charge payable emerge, etc emerges.
After the implementation of the GST rule, the tax system has become more complicated than before. Here the catch is, once an invoice is issued, it cannot be cancelled, reverted or edited. Credit notes simply help the supplier to keep his accounts straight. A supplier can delete the amount in the invoice from his accounting records without deleting the invoice itself.
Whenever a situation comes where an invoice needs to change or re-issued, the supplier can generate a credit note. It is often linked with an invoice, nevertheless, a credit note can be issued separately for future uses.
Conditions for issuing a credit note
In accordance with the Goods and Service taxes laws, a credit note can be issued in the following circumstances:
- When an error occurred while generating the tax invoice.
- Goods and services provided to the client are not up to the mark.
- When the taxable amount charged from the client is more than the actual amount.
- The real value of the goods and products is less than the amount mentioned in the tax invoiced.
- If the goods and services furnished by the provisioner are returned for any other similar reasons.
Format of credit note under GST
As of now, it is clear what is credit note and when it is issued. Now let us know the details that should be mentioned in a credit note:
- GSTIN (Goods and Service Tax Identification Number), Name and Address of the registered supplier.
- Type of the Document (Credit Note)
- The aforementioned issued date of the credit note.
- A serial number that is consecutive, unique and comprises alphabets, numerical and special characters like slash, dash, underscore, etc.
- Unique identification number or GSTIN number, name, address of the buyer if the buyer is a registered individual.
- In case the buyer is not registered, name, address, delivery address of the receiver on top of the name of the State and Pincode.
- The amount of the tax credited, rate of the payable tax and value of the taxable supply should be mentioned.
- Date and the serial number of the supply bill and the tax invoice.
- Digital signature or signature of the supplier and his authoritative emissary.
The defined time limit for an issued credit note
When a credit note is raised on a particular month the supplier, the buyer or both should confer the details of the credit note while filing the GST return of the aforementioned month. The affected parties also need to keep in mind that the declaration needs to be done before the month of September, as it is the end of the financial year with which supply commensurate, or they can also proclaim it prior to the date of the annual return filing.
Nevertheless, in brief, what is credit note? It is a necessary tool especially for the suppliers to keep their records intact and updated. When the situation arises providers should issue a credit note for ease of their business.