Credit Note, or Credit Memo, is a commercial document given by a seller to a buyer stating that the seller has credited the buyer’s account in their book. A seller issues credit notes when the entire invoice or a part of it is required to be cancelled due to the following reasons.
- The buyer returns the goods.
- The buyer makes a change in the order after the invoice is generated.
- Sellers make pricing mistakes in the invoice.
- Goods are damaged in the transit.
The seller doesn’t initiate a refund but allows the buyers to purchase for that particular value in the future.
Why is Credit Note Issued?
As per Section 34(1) of the CGST Act, whenever it is required to amend a tax invoice to reduce the tax liability mentioned in it after it has been issued or generated, the supplier must issue a credit note in the buyer’s name.
The seller must report the amended when filing the GSTR 1 for the respective month. The changes will automatically reflect in the buyer’s GSTR 2B and GSTR 2A statements.
Thus, the buyer can check if the seller has filed the GST properly on the official website of Goods and Services Tax (GST). And, the supplier can easily reduce his tax liability without claiming the tax returns.
Information to Include in a Credit Note
The following information must be included while preparing a credit note.
- The date of issue of a credit note
- Invoice date
- Invoice number
- Credit note number
- Customer reference number
- Payment terms
- Company name
- Buyers name
- Billing address
- Shipping address
Steps to Enter Credit Note Received from Suppliers in Tally Prime
You can enter a credit note in Microsoft Excel, Google Sheet, Tally or other free invoicing software. Following are the steps to enter credit notes received from suppliers in Tally Prime.
- From the Gateway of Tally screen, select Vouchers > press F10 > type or select Credit Note
Press Alt+G > go to Create Voucher > press F10 > type or select Credit Note.
- Next, press F12 to configure.
- Set the option Allow selection of supplier reference for the quantity returned to Yes, and press Ctrl+A to accept.
- Enter the Original Invoice Number and the Original Invoice Date of sales for which you are creating the credit note.
- First, enable the option ‘Allow selection of Tax Unit for Credit Note/Debit Note’. Next, select the Tax Unit. Select the Party’s Account Name from the List of Ledger Accounts.
- Select the Nature of Sales Return in the Party Details screen.
- Select the Sales Ledger under Sales Accounts. (Here, check if the options ‘Is VAT/CST Applicable’ and ‘Is Excise Applicable’ are set as Applicable.)
- Now, select the Stock Item and press Enter.
- After pressing Enter, the Supplier Details screen opens (If you have not mentioned the tariff details in the stock item master, it will extract the detail from the stock group only if it is linked to the item.)
- Enter the Sales Invoice Number.
- Once the Invoice number is entered, the Sales Invoice Date is selected automatically.
- Select the reference details from the List of Purchases of the original purchase invoice.
- Now, enter the quantity in the Quantity Return field.
- Once entered, the Supplier Details screen appears.
- Select the Godown in the Stock Item Allocation screen.
- Based on the Godown selection, the Quantity, Rate, and Amount appear automatically.
- Select the VAT ledger.
- Set Provide VAT Details to Yes or No as required.
- Enter the Inspection Document Number and the Date.
- Once done, the Credit Note appears on the screen.
- Accept the screen.
- Finally, press Ctrl+A to save the Credit Note.
Hope the article has given you a brief idea of credit notes. In addition, there is no time limit to issue a credit note, but as a seller, one must declare the credit notes while filing GST for that month within the maximum time limit mentioned under the CGST law, which is,
- On or earlier than 30th September of the following year in which the sale was made
- On or earlier the actual date of filing the annual return of the particular period
Frequently Asked Questions
A credit note is valid for two years from the date of issue, after which any remaining balance mentioned on it would automatically expire.
A seller issues a credit note or credit memo to a buyer as a document stating the reduction in sales.
No, a credit note is not a refund. It is a document stating that the buyer can purchase any products for the mentioned amount from the seller in the future.