Last updated: 28 July 2026. A credit note is how you undo GST on a supply that shrank after you invoiced it — a return, an overcharge, a deficient service. A debit note is the reverse, for an invoice that undercharged. Section 34 of the CGST Act governs both, and it treats them very differently: credit notes carry a hard cut-off and now depend on what your buyer does, while debit notes have no outer deadline at all.
Applicability Note: This guide reflects GST provisions in force as of 28 July 2026, including the proviso to Section 34(2) as substituted with effect from 1 October 2025. Always verify the current position on gst.gov.in or with a GST professional before adjusting a return.
Who Should Care?
- Suppliers handling sales returns, rate corrections, or quality claims — the credit note is your only route to recovering GST already paid.
- Distributors running post-sale discount schemes — a GST credit note and a commercial one produce different tax outcomes for both sides.
- Buyers reviewing credit notes in IMS — since October 2025 your action decides whether your supplier's liability comes down.
- Anyone closing FY 2025-26 books — 30 November 2026 is the last date to declare a credit note for that year's supplies.
1. Credit Note or Debit Note: Which One, and When
The direction of the correction decides the document. Charged too much, issue a credit note. Charged too little, issue a debit note. The Explanation to Section 34 confirms a supplementary invoice counts as a debit note, so the two terms describe the same instrument.
One asymmetry in the drafting is worth noticing. Section 34(1) says a supplier may issue a credit note; Section 34(3) says a supplier shall issue a debit note. Reducing your own liability is optional. Topping up an understated one is not.
| Credit note — Section 34(1) & (2) | Debit note — Section 34(3) & (4) | |
|---|---|---|
| Issued when | Invoice value or tax exceeds what was actually payable; goods returned; goods or services found deficient | Invoice value or tax is less than what was actually payable |
| Optional or mandatory | May issue | Shall issue |
| Effect on supplier | Output tax liability reduces, subject to conditions | Output tax liability increases |
| Outer time limit to declare | 30 November following the end of the FY of supply, or the annual return date, whichever is earlier | None under Section 34 — declare in the return for the month of issue |
| Reported in | GSTR-1 Table 9B, then GSTR-3B | GSTR-1 Table 9B, then GSTR-3B |
Both must carry the particulars in Rule 53(1A) of the CGST Rules, including a reference to the original invoice. Where e-invoicing applies to your turnover, credit and debit notes need an IRN too.
2. The Deadline That Ends Credit Notes: 30 November 2026
Section 34(2) sets the outer limit. A credit note must be declared in the return for the month it was issued, and no later than 30 November following the end of the financial year in which the original supply was made, or the date you file that year's annual return, whichever falls first.
For a supply made in FY 2025-26, that means the credit note has to reach a return by 30 November 2026. In practice the credit note goes into the October 2026 GSTR-1, filed in November 2026 — unless you file the FY 2025-26 annual return earlier, in which case that filing date becomes your cut-off.
The deadline governs the declaration, not the paperwork. Nothing stops you issuing a credit note in January 2027 for an FY 2025-26 supply. It simply cannot reduce your GST liability, because the window to declare it has closed. What you are left with is a commercial credit note, covered in section 4 below.
The limitation also runs off the financial year of the original supply, not the year the problem surfaced. A dispute settled in August 2026 over a March 2026 invoice still sits inside FY 2025-26, so it is on the November 2026 clock.
3. From 1 October 2025, Your Buyer Has to Reverse First
This is the change most likely to catch out a 2026 filing. The proviso to Section 34(2) was substituted by the Finance Act, 2025 and brought into force on 1 October 2025 by Notification No. 16/2025-Central Tax dated 17 September 2025.
The supplier's output tax liability cannot be reduced by a credit note if the input tax credit attributable to that credit note, where the recipient availed it, has not been reversed by that recipient — or if the incidence of tax on such supply has already been passed on to someone else. Your reduction is now conditional on someone else's compliance.
The portal mechanism for this is the Invoice Management System. Credit notes land in the recipient's IMS dashboard as separate records, and the action taken there decides the outcome:
- Accepted — the recipient's ITC reduces in GSTR-2B, and the supplier's liability reduction stands.
- Rejected — the system treats the credit note as never issued, and the amount is added back to the supplier's liability in the open GSTR-3B. If the credit note was in fact valid, the supplier re-furnishes it through GSTR-1A for the same period or the amendment table of a later GSTR-1, and the liability comes back down.
- Pending — permitted for credit notes, but only for one tax period (one month for monthly filers, one quarter for quarterly filers) per the GSTN advisory dated 23 September 2025. After that the record has to be accepted or rejected.
A credit note is no longer a one-sided entry. If a customer rejects it or lets the pending window lapse, your liability moves. Chasing the acknowledgement is now part of issuing the note.
4. Commercial Credit Notes Carry No GST at All
A commercial or financial credit note is a pure accounting adjustment. It passes a discount or settlement to the buyer without touching the tax on the original invoice. Suppliers reach for it when the Section 34(2) window has closed, or when a post-supply discount does not satisfy Section 15(3)(b).
Section 15(3)(b) is the gate for excluding a post-supply discount from transaction value. Two conditions apply together: the discount must be established by an agreement entered into at or before the time of supply and specifically linked to the relevant invoices, and the recipient must have reversed the ITC attributable to it. Circular No. 212/06/2024-GST dated 26 June 2024 sets out how a supplier evidences that reversal — a Chartered Accountant or Cost Accountant certificate carrying a UDIN where the tax amount in credit notes issued to that recipient exceeds ₹5,00,000 in a financial year, and an undertaking from the recipient below that figure.
Where those conditions are not met, the discount travels on a commercial credit note instead. Circular No. 251/08/2025-GST dated 12 September 2025, issued on the recommendations of the 56th GST Council meeting, settles what follows: because a commercial credit note does not reduce the original transaction value, the supplier's tax liability is unchanged and the recipient is not required to reverse any ITC on the discount conveyed through it. That closes a long-running audit argument in dealer and distributor networks.
5. Debit Notes Have No Deadline — but the ITC Clock Still Runs
Section 34(4) requires a debit note to be declared in the return for the month it is issued. There is no 30 November equivalent, because a debit note raises tax rather than reduces it.
The time limit sits with the buyer instead. Section 16(4) was amended by the Finance Act, 2020 with effect from 1 January 2021 to delink a debit note from its underlying invoice. The relevant financial year for claiming ITC is now the year of the debit note's own date, confirmed by CBIC Circular No. 160/16/2021-GST dated 20 September 2021.
A debit note dated May 2026 against an FY 2022-23 invoice therefore gives the recipient until 30 November 2027 to claim that credit, subject to every other condition in Section 16. Before the amendment it would have been dead on arrival.
6. Where They Actually Go in Your Returns
Credit and debit notes issued to registered persons go into Table 9B of GSTR-1 with the original invoice reference, and the net effect flows into GSTR-3B for the same period. Notes against B2C large invoices go in the corresponding unregistered section. Spot an error before that period's GSTR-3B is filed and GSTR-1A fixes the same tax period, rather than next month's amendment table.
Key Takeaways
- Credit notes are optional under Section 34(1); debit notes are mandatory under Section 34(3). Undercharging is not something you can quietly leave alone.
- A credit note for an FY 2025-26 supply must be declared by 30 November 2026 or the FY 2025-26 annual return date, whichever is earlier. The clock runs from the year of the original supply.
- Since 1 October 2025, your output tax reduction depends on the registered recipient reversing the corresponding ITC. Track the credit note through IMS rather than assuming it landed.
- A commercial credit note changes no GST for either side, and per Circular No. 251/08/2025-GST dated 12 September 2025 the recipient does not reverse ITC on it.
- Debit notes have no outer limit to declare, but the recipient's ITC deadline runs off the debit note's own date since 1 January 2021.
Frequently Asked Questions
What is the time limit to issue a credit note under GST?
Section 34(2) limits the declaration, not the issue. A credit note must be declared in a return by 30 November following the end of the financial year of the original supply, or by the date of filing that year's annual return, whichever is earlier. For an FY 2025-26 supply the date is 30 November 2026. You can still issue a credit note after that, but it cannot reduce your GST liability.
Can I reduce my GST liability if the buyer rejects my credit note?
No. Under the proviso to Section 34(2), in force since 1 October 2025 by Notification No. 16/2025-Central Tax dated 17 September 2025, no reduction in output tax liability is permitted unless the registered recipient has reversed the input tax credit attributable to that credit note. A rejection in IMS adds the amount back to your liability in the open GSTR-3B.
Is there a time limit for issuing a debit note under GST?
Section 34 sets no outer limit for debit notes. Section 34(4) simply requires the debit note to be declared in the return for the month it was issued. The constraint falls on the recipient, whose Section 16(4) window is measured from the financial year of the debit note itself since 1 January 2021.
Does the recipient have to reverse ITC on a commercial credit note?
No. Circular No. 251/08/2025-GST dated 12 September 2025 clarifies that a financial or commercial credit note does not reduce the original transaction value, so the supplier's tax liability is unchanged and the recipient is not required to reverse ITC on the discount passed through it.
What proof does a supplier need for a post-sale discount credit note?
Where the discount is excluded from transaction value under Section 15(3)(b), Circular No. 212/06/2024-GST dated 26 June 2024 requires evidence that the recipient reversed the attributable ITC — a Chartered Accountant or Cost Accountant certificate with a UDIN where the tax amount in credit notes to that recipient exceeds ₹5,00,000 in a financial year, and an undertaking from the recipient where it does not.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. GST rules are subject to frequent changes through notifications and circulars. Please consult a qualified tax professional or verify the current provisions on the official GST portal (gst.gov.in) before making any compliance decisions.
Sitting on a credit note your customer has not acted on, or unsure whether a discount belongs on a GST note or a commercial one? Our GST experts can help → gstconsultancy.com