A document issued by a seller to a buyer reducing the amount owed, typically for returned goods, billing errors, or post-sale adjustments.
A Credit Memo (or Credit Memorandum) reduces a buyer's outstanding balance without issuing a cash refund. It can be applied against future purchases or existing invoices. Common reasons include: goods returned, pricing errors, damaged goods accepted at reduced price, quantity shortfalls, and early payment adjustments. Under GST, a Credit Note must be issued when the taxable value or tax charged in the original invoice exceeds the actual amount — this adjusts the seller's output tax liability and the buyer's input tax credit. Credit memos must reference the original invoice number and maintain a proper audit trail.
Original Invoice #501: 100 units × ₹1,000 = ₹1,00,000 + 18% GST = ₹1,18,000. Buyer returns 10 defective units. Credit Memo #CM-087: 10 × ₹1,000 = ₹10,000 + GST ₹1,800 = ₹11,800. Buyer's new balance: ₹1,18,000 − ₹11,800 = ₹1,06,200.
glossaryTermPage.reasons.accuracy
glossaryTermPage.reasons.compliance
glossaryTermPage.reasons.decisions
glossaryTermPage.reasons.efficiency
They are essentially the same document — 'credit note' is the term used in Indian/UK accounting and under GST, while 'credit memo' is more common in US accounting. Both reduce the buyer's payable amount. Under GST, the term 'credit note' is specifically defined in Section 34.
A credit note must be declared in the GST return for the month in which it's issued, but no later than: (a) September 30 following the end of the financial year in which the supply was made, or (b) the date of filing the annual return, whichever is earlier.
A document issued by a seller to a buyer reducing the amount owed, typically for returned goods, billing errors, or post-sale discounts.
A document issued by a seller to increase the amount owed by a buyer, or by a buyer to formally request a credit from a seller for returns or overcharges.
A commercial document issued by a seller to a buyer, detailing the products or services provided, quantities, prices, and payment terms.
A legal document issued by a registered GST dealer to a buyer showing the details of goods/services supplied, their value, and the applicable GST charged.
glossaryTermPage.cta.subtitle