GST implication of debit & credit notes

Meaning of debit & credit notes:

First understand what are debit and credit notes, so as to fully grasp the impact they have on taxable supplies reported in the tax returns.

When the buyer’s account is overcharged, he sends a debit note to seller. When the buyer returns the goods purchased by him, then also he delivers the debit note. When the buyer undercharges the seller’s account, then he issues debit note.

When the buyer overcharges the seller’s account, he issues the credit note. When the supplier gets back the goods sold by him to the buyer, then also credit note is issued. A buyer can also send credit notes,in case the seller under charges him.

Two questions:-

1. What happens when we are supplied less quantity than what was ordered by us. What are the GST implications for us to use the credit note issued to us? How will we factor in with ITC? Will it reduce our ITC or increase our ITC?

 This will definitely reduce your ITC. In GST, the effect of debit note and credit note will be considered only when these are issued by supplier and in this case, you (recipient) had issued debit note.

So in my opinion unless & until these notes are issued from supplier, you shouldn't make any change in your GST return.

2. What happens when we have supplied lower quantity than what was ordered by others...? How will this entry be factored and shown in the GST filing since we still do not have any provisions for filing GSTR2? There is a guess that it can’t be treated as an outward supply and shown in GSTR1?

You will reverse the amount of ITC on the credit note that has been issued to you by your supplier.You issued debit note for the same thing it is equivalent to the credit note issued by supplier, however in GST only supplier can issue credit note and he will show it in his return you just need to reverse the amount of ITC, no disclosure required in your return for the debit note issued by you.

The debit note issued by you is only for accounting purpose and it will not be reflected anywhere in the returns. In GST law, only the credit/debit note issued by supplier is considered.

There will just be a reversal in the tax in sec. 3B, &no need to disclose in GSTR 1 return form.