Credit Note in GST - Meaning, Examples, Format, Steps to Create, and Procedure for issuing It

Know what a credit note in GST is, when it's issued, and how it helps adjust tax liability for GST compliance.
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3 min
30 June 2025

A credit note in GST is a document a seller gives to a buyer to reduce the value of goods or services sold. This also adjusts the seller’s GST payment. In this guide, we will explain the different types of credit notes, how to issue them, what details are needed, and how to file them in GST returns to follow the rules properly.

What is a credit note in GST?

A credit note in GST is a document issued by a supplier to acknowledge a reduction in the value of goods or services supplied. The credit note ensures that the supplier’s GST liability is reduced accordingly, maintaining accuracy in the tax records. This helps in keeping the accounts reconciled and compliant with GST regulations, ensuring transparency and fairness in transactions. Learn about GST registration fees for understanding related compliance costs.

Examples of credit note

  1. Product return: When a customer returns defective or unsatisfactory products.
  2. Invoice correction: If there was an error in the original invoice amount.
  3. Post-sale discount: Providing a discount after the sale has been completed.
  4. Service non-delivery: If a service was not provided as per the contract terms.
  5. Rate difference: Adjusting for any differences in agreed rates versus billed rates.

Reasons when and why credit note in GST is issued

  1. Product returns: When customers return goods due to defects or other reasons.
  2. Invoice corrections: Correcting errors such as overbilling or incorrect quantities.
  3. Post-sale discounts: Adjusting for discounts offered after the initial sale.
  4. Service non-performance: If the service was not rendered as promised.
  5. Rate differences: Adjusting discrepancies between agreed rates and actual billed rates.

For more insights into how GST accommodates adjustments like credit notes, explore the features of GST.

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Credit note format

  • Supplier details: Name, address, and GSTIN of the seller.
  • Recipient details: Name, address, and GSTIN of the buyer.
  • Original invoice details: Mention the original invoice number and date.
  • Credit note number: A unique serial number for the credit note.
  • Goods/services description: Clear details of the goods or services related to the credit note.
  • Amount: The reduced amount, including a breakdown of the taxes.

Steps to create a credit note

  • Access accounting software: Use your accounting software to create a credit note.
  • Enter original invoice details: Include the original invoice number and date.
  • Provide reason for credit: Clearly mention the reason for issuing the credit note.
  • Detail the adjustments: Enter the amounts and tax details to be adjusted.
  • Generate and review: Generate the credit note and review for accuracy.
  • Send to recipient: Share the credit note with the recipient and maintain a copy for records.

To understand the significance of UIN in specific GST-related processes, check out UIN under GST.

Procedure for issuing a credit note in GST

  • Identify the need: Determine the reason for issuing the credit note.
  • Create the document: Use accounting software or manual methods to draft the credit note.
  • Reference the original invoice: Include details of the original invoice to which the credit note pertains.
  • Detail the adjustments: Clearly mention the adjustments in value and tax.
  • Approval and signature: Get the credit note approved and signed by the authorised person.
  • Issue to recipient: Provide the recipient with a copy of the credit note.

Details of credit note to be filed in GST returns

  • Supplier and recipient details: Include names, addresses, and GSTINs.
  • Original invoice reference: Reference the original invoice number and date.
  • Credit note number: Include the unique serial number of the credit note.
  • Tax adjustment details: Break down the tax adjustments made.
  • Reason for issuance: Clearly state the reason for issuing the credit note.
  • Filing in GSTR9: Ensure that these details are accurately included in the GSTR9 and other relevant GST returns for compliance.

Conclusion

Credit notes are crucial for maintaining accurate financial records and ensuring compliance with GST regulations. They allow businesses to make necessary adjustments and reflect the true value of transactions. Whether correcting errors, returning goods, or adjusting for discounts, credit notes help in achieving transparency and fairness. Properly managing credit notes can also positively impact a business's financial health, aiding in better planning and decision-making. This, in turn, strengthens eligibility when applying for a secured business loan to support growth or operational needs.

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Frequently asked questions

What is a credit note, with an example?
A credit note is a document issued by a supplier to acknowledge a reduction in the amount due from a customer. It is typically issued when goods are returned, there is a billing error, or a post-sale discount is given. For example, if a customer returns a faulty product worth £100, the supplier will issue a credit note for £100, reducing the customer's outstanding balance by that amount. This ensures accurate accounting and compliance with GST regulations.

Why is a credit note issued in GST?
A credit note is issued in GST to acknowledge a reduction in the value of goods or services supplied. This occurs due to reasons such as product returns, post-sale discounts, invoice errors, or service non-delivery. Issuing a credit note ensures that the supplier's GST liability is accurately adjusted, maintaining compliance with GST regulations. It helps in keeping financial records precise and transparent, reflecting the true value of transactions and ensuring fairness in business dealings.

What is the rule of credit note in GST?
In GST, a credit note can be issued by a supplier when there is a need to reduce the value of an invoice already issued. This may occur due to goods being returned, invoice corrections, post-sale discounts, or service non-performance. The credit note must reference the original invoice and specify the reason for issuance. It must be issued within the same financial year and reflected in the supplier’s GST returns, ensuring accurate tax adjustments and compliance with GST regulations.

Can we give credit notes without GST?
Yes, it is possible to issue credit notes without GST if the original transaction was not subject to GST or if the credit note pertains to a non-taxable supply. In such cases, the credit note should clearly mention that no GST is applicable. This ensures transparency and accuracy in financial records. However, it is essential to follow the appropriate accounting standards and maintain proper documentation to support the issuance of such credit notes without GST.

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