GST glossary
Credit note
A credit note is the document a seller issues to reduce the value or the GST of an invoice already issued, for example when goods are returned, the price is reduced or the tax was overcharged. It lowers what the customer owes and, if declared in time, the seller's GST liability.
Why it matters to your business
Returns, rate differences and discounts agreed after the sale are part of daily trade. Without a credit note, your books show the customer owing more than they do, you pay GST on a sale that was partly undone, and your customer’s ledger never agrees with yours.
How it works
As of October 2026:
- Section 34 of the CGST Act allows a credit note when the value or tax on a tax invoice was too high, goods are returned, or the supply was deficient.
- It must refer to the original invoice and carry its own unique number, the date, both GSTINs, the value and the tax being reduced.
- You report it in GSTR-1, and it reduces the tax you pay in GSTR-3B.
- The deadline to declare it is 30 November following the financial year of the original supply, or the date of the annual return, whichever comes first.
- The customer reverses the matching input tax credit. Since 1 October 2025 the reduction in your liability depends on that reversal.
- If you owe the customer more instead of less, the document is a debit note.
An example
A Delhi garment wholesaler invoices ₹50,000 plus 5% GST (₹52,500) to a retailer. The retailer returns goods worth ₹10,000. The wholesaler issues a credit note for ₹10,000 plus ₹500 GST against that invoice. The retailer now owes ₹42,000, the wholesaler’s GST for the month falls by ₹500, and the retailer reverses ₹500 of credit.
Common mistakes
- Issuing a credit note with GST after the deadline has passed.
- Not linking the credit note to the invoice it corrects.
- Adjusting a return silently in the next invoice instead of raising a credit note.
- Forgetting that the customer must reverse the credit.
Questions about Credit note
When should I issue a credit note?
When the taxable value or the tax on an invoice turns out to be more than it should be, when goods are returned, or when the goods or services are found deficient. You cannot simply cancel and re-issue an invoice that is already reported.
What is the time limit for a GST credit note?
To reduce your GST liability, it must be declared in a return by 30 November after the end of the financial year of the sale, or by the date you file that year's annual return, whichever is earlier.
Can I issue a credit note after the time limit?
Yes, but only as a commercial credit note without GST. It reduces what the customer owes you, and your tax liability stays as it was.
Does my customer have to do anything when I issue a credit note?
Yes. A registered customer must reverse the input tax credit taken on the original invoice. Since 1 October 2025 your liability is reduced only when the customer has reversed that credit, which they confirm on the GST portal.
Updated .