From 1 October 2025, the GST rules in India will change, especially for credit notes and their reflection in the GSTR-2B.
What’s Changing?
Under the revised process, credit notes issued by suppliers will now require explicit acceptance by customers (recipients) in the Invoice Matching System (IMS). If a buyer rejects a credit note, the supplier’s output tax liability will not be reduced, even if the credit note has been duly reported in GSTR-1.
In simpler terms:
- Credit notes will no longer automatically adjust the supplier’s tax liability.
- The supplier’s tax reduction will take effect only when the buyer accepts the credit note and reverses the corresponding input tax credit (ITC).
Explanation of the New Process
- When a supplier reports a credit note in GSTR-1, it will now appear in the recipient’s GSTR-2B.
- The recipient has the option to either accept or reject this credit note in the IMS.
- If the recipient accepts the credit note:
- The supplier’s output tax liability will be reduced accordingly.
- The recipient must reverse the corresponding ITC.
- If the recipient rejects the credit note:
- The supplier’s tax liability will be added back in GSTR-3B, resulting in an additional tax burden.
Example
Suppose XYZ Limited issues a credit note to PQR Enterprises.
If PQR rejects the credit note in the Invoice Matching System, XYZ’s output tax liability will not reduce, even though the credit note is reflected in GSTR-1. The liability will only reduce once PQR accepts the credit note and reverses the ITC.
This change stems from amendments under Section 34 of the CGST Act, aimed at improving invoice reconciliation and preventing misuse of credit notes.
Key Actions Required from Suppliers
To stay compliant and avoid potential tax liabilities, suppliers should follow these mandatory precautions:
- Seek prior confirmation before issuing a credit note: Before raising any credit note, ensure that the buyer or customer agrees with the need for the credit note.
- Ensure acceptance in the Invoice Matching System (IMS): After issuing a credit note, confirm that the customer records it properly in their books and accepts it in the IMS to avoid reversal of liability.
- Maintain invoice accuracy: While issuing invoices, ensure accuracy and timely delivery to clients to minimize the need for credit notes altogether.
Why It Matters
These new rules make invoice matching and communication between supplier and buyer more critical than ever. A simple rejection or delay in acceptance of a credit note could lead to:
- Additional tax liability for suppliers
- Cash flow issues due to delayed adjustments
- Potential queries or audits from the GST Department
In Summary
From 1 October 2025, credit note management under GST will become a collaborative process between suppliers and customers. Proactive communication, accurate documentation, and timely acceptance in the system will be essential to maintain compliance and avoid unnecessary tax burdens.
Stay alert and prepare your systems and teams for these upcoming changes.
