New condition for credit note deduction in GST

Summary

In this video, the speaker explains significant changes in the GST system introduced in the 55th GST Council Meeting, focusing on credit note adjustments. The new amendment requires businesses to reverse Input Tax Credit (ITC) before reducing their output tax liability. The speaker uses a detailed example of a transaction between Mr. A (the supplier) and Mr. B (the recipient) to explain how the process now works. These updates, affecting Section 34 and Section 342 of the GST Act, aim to enforce stricter compliance for credit note adjustments. The video provides practical advice for businesses to navigate these changes effectively.

Takeaways

• 😀 The 55th GST Council meeting introduced a significant change in the adjustment of credit notes in GST returns.
• 😀 Under the new law, businesses can no longer freely adjust credit notes in their GST returns without conditions.
• 😀 The recipient (e.g., Mr. B) must reverse the Input Tax Credit (ITC) on the credit note in their GST return (GSTR 3B) before the supplier (e.g., Mr. A) can reduce their output tax liability.
• 😀 The IMS portal plays a central role in determining whether the credit note can be adjusted, as it tracks the reversal of ITC.
• 😀 If the recipient rejects or leaves the credit note pending in the IMS portal, the supplier cannot reduce their output tax liability.
• 😀 A supplier can only reduce their output tax liability after the recipient has accepted or deemed accepted the credit note in the IMS portal.
• 😀 The amendment introduces a legal condition requiring the reversal of ITC by the recipient to enable the supplier to adjust their output tax liability.
• 😀 The advisory issued by the government specifies that if the recipient rejects a credit note, the liability will be added to the next month’s GSTR 3B of the supplier.
• 😀 The legal provision related to credit note adjustments will be updated in Section 342 and Rule 67B of the GST law.
• 😀 These changes aim to ensure better tracking and accountability of credit note adjustments, making the process more transparent and regulated.

Q & A

What is the key change introduced in the 55th GST Council meeting regarding credit notes?

The key change is that credit note adjustments can no longer be made directly in the GST return. New conditions and amendments were introduced, which require the recipient to reverse their Input Tax Credit (ITC) before the supplier can reduce their output tax liability.

What are the new conditions for adjusting credit notes in GST returns?

The new condition requires the recipient of the credit note (Mr. B in the example) to reverse the ITC claimed from the credit note in their GST return (GST 3B). Only after this reversal can the supplier (Mr. A) reduce their output tax liability.

How does the change affect GST returns for suppliers and recipients?

The supplier can no longer reduce their output tax liability based on a credit note until the recipient reverses the corresponding ITC. This change is tracked through the GST portal, where the recipient must accept, reject, or keep the credit note pending.

What are the steps for reversing ITC in GST returns under the new amendment?

The recipient must reverse the ITC in their GST 3B return. This process is crucial for the supplier to reduce their output tax liability, and it is linked to the recipient's actions on the IMS portal, such as accepting or rejecting the credit note.

What happens if the recipient rejects the credit note?

If the recipient rejects or keeps the credit note pending, the supplier will not be eligible to reduce their output tax liability for that credit note in the GST return.

How does the IMS portal play a role in the new credit note adjustment process?

The IMS portal plays a central role in ensuring that the recipient's acceptance or rejection of the credit note is recorded, which directly impacts whether the supplier can adjust their output tax liability.

How does the new amendment impact the way GST returns are filed?

The amendment means that the adjustment of credit notes in GST returns can only happen once the recipient has reversed their ITC. Additionally, the GST 2B statement generated from the IMS portal will be required before filing GST 3B.

What are the amendments in Section 34 and Rule 60 related to credit notes?

Section 34 has been amended to include a new condition for reversing ITC before adjusting the credit note in the supplier's GST return. Rule 60 has also been amended to reflect these changes and ensure proper compliance.

What is the practical advisory related to credit notes and the reversal process?

The advisory indicates that if the recipient rejects a credit note, the supplier’s liability will be added back to the next month's GST return. However, the legal provision is stricter and requires the reversal to happen immediately before the supplier can adjust the credit note.

How will these changes affect businesses filing GST returns?

Businesses will need to be more vigilant in coordinating with their clients (recipients) regarding credit notes. The recipient must reverse the ITC before the supplier can reduce their tax liability, which adds an extra layer of complexity in GST filing and compliance.