# Credit Note [Section 34]

## Why a Credit Note?

A credit note is the supplier's tool to reduce the value or tax originally charged on an invoice. It corrects the position when the original invoice over-stated the liability.

## When Must a Credit Note Be Issued?

A credit note is required when:

1. Value declared > actual value of supply (over-billing).

2. Tax rate declared > applicable tax rate (wrong rate applied).

3. Quantity received < quantity invoiced (short delivery).

4. Quality is unsatisfactory — supply rejected partly or fully and amount needs refund.

5. Advance received & invoice issued, but service not provided — refund required.

> Helpful: One consolidated credit note can cover multiple invoices — no invoice-wise credit note is required.

## Effect of Credit Note

Supplier's output tax liability is reduced
Condition: This reduction is allowed only if the recipient reverses the corresponding ITC. Otherwise, revenue would leak — supplier would reduce liability while recipient kept credit.

## Time Limit to Declare Credit Note in Returns

A credit note must be declared in the return for the month in which it is issued, but not later than the earlier of:

30th November following the end of the FY of the original supply, OR
Date of furnishing the annual return

Worked example

### Example 1

Example — Time Limit

Supplier issued an invoice in August 2024 (FY 2024-25). The recipient rejected part of the supply in October 2025.

Last date to declare the credit note in returns:

Earlier of: 30 November 2025 (i.e., 30 Nov following FY 2024-25) OR date of annual return for FY 2024-25.
Since 30.11.2025 is earlier, credit note must be declared by 30.11.2025.
If declared after this date, the supplier cannot reduce his tax liability.

⚠️ Common exam mistakes

Issuing one credit note per invoice when consolidated credit note is permitted.
Reducing output tax liability without ensuring recipient has reversed the ITC.
Computing the time-limit from the date of credit note instead of the FY of the original supply.
Treating the time-limit as 30th September — it was extended to 30th November.
Issuing a debit note (instead of credit note) when value was over-stated — directions are opposite.

Bare-Act text Section 34(1) · CGST Act, 2017 · click to expand

Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed.

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Credit Note under Section 34

Worked example

⚠️ Common exam mistakes