The Goods and Service Tax Network (GSTN) has recently activated the validation of delinking of Credit or Debit Note (CDN) from its original GST invoice on the GST portal. In other words, GSTN has enabled the facility to report consolidated credit or debit notes under GST in GSTR-1. With this change, taxpayers need not declare the original invoice number and its date while reporting credit or debit notes in GSTR-1.
The move is much-needed to reduce the disclosures required by a taxpayer on the GST portal and, in turn, the compliance burden. Moreover, businesses will not face practical difficulties when they issue a single credit or debit note against multiple invoices, where tagging of one CDN against every invoice is not possible.
Taking an instance, suppose a taxpayer, ABC Limited has raised thirty invoices on its customer, PQR Limited, between May 2020 and September 2020. Meanwhile, ABC Limited needs to issue a credit note in December 2020 due to a price difference. In such a case, ABC Limited can raise one credit note for all the thirty invoices while GSTN will not ask for the original invoice reference in GSTR-1. Similarly, even debit notes can be issued against multiple invoices.
Section 34 of the Central Goods and Services Act, 2017 deals with credit or debit notes issued by taxpayers under the GST law. Before amending Section 34, the provision required a registered person to issue additional credit or debit notes in respect of the every tax invoice raised in a financial year under GST.
Later, amendments to Section 34(1) and 34(3) were passed vide CGST amendment Act, 2018, effective from 1st February 2019. It allowed one or more credit or debit notes to be linked against more than one tax invoice raised within a financial year. However, after more than a year and a half of wait, the change is live on the GST portal from 14th September 2020 onwards.
It is imperative to refer to two other provisions of the CGST Act. Firstly, Section 16 (4) of the CGST Act was amended vide Finance Act 2020 wherein tax credit available against the debit notes were delinked from its original invoice issue date. Section 16(4) puts a deadline for taxpayers to claim the Input Tax Credit (ITC) on invoices and debit notes of a financial year as the earlier of the due date to file returns for September of the following year or actual date of filing the annual returns for that financial year.
Let’s understand the amendment with an example. Suppose ABC Limited received a debit note on 8th June 2020 for an invoice related to FY 2019-20. Before the amendment, the deadline to claim ITC available on that debit note was by the due date to file GSTR-3B of September 2020. It is because 16(4) explicitly covered that ITC relating to the financial year will link to that period where the invoice or invoice relating to such debit note is raised. But after the Finance Act, 2020 amendment, the debit note will be delinked from its original invoice, wherein it is considered as ITC of FY 2020-21. Accordingly, ABC Limited has time till the due date of filing GSTR-3B of September 2021 to claim the ITC on debit note.
Secondly, Section 15(3) of the CGST Act continues to highlight the statutory responsibility of the taxpayer to keep a record of the original invoice about the credit notes issued for any discounts. As per this provision, a person can reduce the amount of discount available through credit note from the value of supply only if conditions are satisfied. Such a discount must be based on a prior agreement and specifically linked to relevant invoices. Otherwise, any failure to reproduce details before the tax authority can land him in trouble and GST will have to be paid on that discount value. Hence, keeping the original invoice reference is essential in this case.
On the other hand, an e-invoice schema has already made it optional for a taxpayer to declare the preceding document details about a debit or credit note. The e-invoicing system will be effective from 1st October 2020 for taxpayers with a turnover of more than Rs 500 crore.
Although the delinking of CDN from invoices is now effective, taxpayers are advised to continue keeping the original invoice reference against debit or credit notes on their accounting records. It allows an easy connection in the future as well as a smooth verification during audits.
For any clarifications/feedback on the topic, please contact the writer at firstname.lastname@example.org
Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.