Section 34 of CGST Act: Complete Guide to Credit and Debit Notes under GST (2025 Update)

Section 34 of the CGST Act, 2017, governs the issuance and declaration of credit and debit notes under GST, enabling suppliers to rectify overcharges, undercharges, or deficiencies in goods or services. Credit notes are used to reduce tax liability in cases of returns or excess billing, while debit notes increase tax liability for underbilled supplies.

Recent amendments, including those from the Finance Act, 2025, mandate input tax credit (ITC) reversal by recipients before suppliers can adjust their tax liability, ensuring transparency and preventing unjust enrichment. Rule 53 outlines the format and details required for these documents. Timely compliance is crucial for accurate tax reporting and avoiding penalties.

GST Section 34: Unpacking Credit and Debit Notes

Greetings! At AUBSP, we understand how crucial it is for businesses to stay compliant with India’s dynamic Goods and Services Tax (GST) regime. One such important provision is Section 34 of the Central Goods and Services Tax (CGST) Act, 2017, which became effective on July 1, 2017. This section governs Credit Notes and Debit Notes, acting as essential tools for correcting errors or making adjustments in the original tax invoices.

Together with Rule 53 of the CGST Rules, Section 34 provides the statutory foundation for ensuring that tax liabilities reflect the true transaction values. In this article, AUBSP walks you through the what, why, when, and how of Credit and Debit Notes under GST.

Understanding Credit Notes [Section 34(1)]

What is a Credit Note?

A credit note is a financial document issued by a registered supplier to a recipient, primarily to reduce the taxable value or the tax charged on an earlier invoice.

When Should You Issue a Credit Note?

Under Section 34(1), a credit note should be issued in the following cases:

• Excess Taxable Value or Tax Charged: Errors in invoice calculation or changes in the agreed transaction value.
• Goods Returned by Recipient: Common in industries with high returns, such as retail and manufacturing.
• Deficient Goods or Services: When the delivered goods/services fail to meet quality or contract standards.

At AUBSP, we recommend keeping a robust internal system to track return or adjustment scenarios timely.

Declaring Credit Notes [Section 34(2)]

How and When to Declare?

Credit notes must be declared in the GST return for the month in which they are issued.

Important Timeline for Credit Note Declaration

🔍 Example by AUBSP: If a supply was made in FY 2024-25, the credit note must be declared no later than 30th November 2025, or the filing date of the annual return for that year — whichever is earlier.

Tax Liability Adjustment

Upon declaration, output tax liability is reduced to reflect the corrected value of supply.

Important Proviso to Section 34(2) (As amended by Finance Act, 2025)

The Finance Act, 2025 introduced a pivotal proviso:

1. ITC Reversal Requirement by Recipient:
   • If the recipient has already availed ITC, the supplier cannot reduce their output tax unless the recipient reverses the ITC related to the credit note.
2. Incidence of Tax Passed On:
   • If the tax burden has been passed on to another party (e.g., a consumer), the supplier is barred from reducing output tax.
   • This prevents unjust enrichment.

✅ AUBSP Tip: Always verify the recipient’s ITC status before claiming reduction in output tax via credit notes.

Understanding Debit Notes [Section 34(3)]

What is a Debit Note?

A debit note increases the taxable value or tax amount on a previously issued tax invoice. It is also issued by the registered supplier to the recipient.

When Should You Issue a Debit Note?

• Tax or Value Understated in Original Invoice
• Price Adjustment agreed upon after issuance
• Supplementary Invoice to correct an omission

Like credit notes, multiple debit notes can be issued for a single invoice within a financial year.

Declaring Debit Notes [Section 34(4)]

Declaration Process

Details of the debit note must be disclosed in the GST return of the month in which it is issued.

Impact on Tax Liability

Declaration leads to an increase in the supplier’s output tax liability equivalent to the additional tax specified.

Explanation: Supplementary Invoice as Debit Note

The Explanation to Section 34 clarifies:

“For the purposes of this Act, the expression ‘debit note’ shall include a ‘supplementary invoice’.”

This broadens the scope of compliance by encompassing all forms of post-supply corrections, under one framework.

Rule 53: Format & Particulars

Although not detailed in the Act itself, Rule 53 of CGST Rules mandates that credit and debit notes must include:

1. Name, address, and GSTIN of the supplier
2. Serial number and date
3. Reference to original invoice
4. Name and address of recipient
5. Description and taxable value
6. Rate and amount of tax (CGST/SGST/IGST/UTGST)
7. Signature or digital signature of the issuer

📋 AUBSP recommends using GST-compliant billing software to ensure all mandatory fields are captured.

Important Dates Table: Credit & Debit Notes under GST

In conclusion, Section 34 of the CGST Act, 2017, is an essential pillar in the GST framework for post-invoice corrections. The detailed provisions ensure that:

• Credit Notes help reduce tax when overcharging or deficiencies are identified.
• Debit Notes are used to increase tax liability where undercharging occurred.
• Strict timelines and conditions (especially post-2025 amendments) preserve the integrity of input-output tax chains.

Businesses must proactively align their accounting practices to these provisions to avoid compliance risks.

We emphasize regular reconciliation of outward supplies, ITC validations, and timely issuance/declaration of these notes to ensure error-free GST returns. For further assistance, refer to our dedicated GST compliance guides and stay ahead with AUBSP.com.

FAQs on Section 34 of CGST Act 2017

What is Section 34 of the CGST Act, 2017?
Section 34 of the CGST Act, 2017 governs the issuance of credit and debit notes to amend tax invoices, ensuring accurate tax liability for GST-registered suppliers.

When can a credit note be issued under GST?
A credit note can be issued when there is excess tax charged, goods are returned by the recipient, or goods/services are found to be deficient.

What is the deadline for declaring a credit note under GST?
The credit note must be declared in the GST return by 30th November following the end of the financial year or before filing the annual return, whichever is earlier.

What are the conditions for reducing output tax liability through a credit note?
Output tax liability can be reduced only if the recipient has reversed the related input tax credit and the tax incidence hasn’t been passed to another person.

Can multiple credit notes be issued for the same supply?
Yes, a registered supplier can issue multiple credit notes for a single or multiple invoices within a financial year.

What is a debit note under GST?
A debit note is issued to increase the taxable value or tax charged on a supply when the original invoice undercharged tax or value.

When should a debit note be issued?
A debit note is issued when the actual taxable value or tax payable exceeds the amount mentioned in the original tax invoice.

Is there a deadline for declaring debit notes in GST returns?
Debit notes must be declared in the GST return for the month in which they are issued. There is no upper time limit post-2020 amendments.

What is the difference between a credit note and a debit note?
A credit note reduces taxable value/tax liability, while a debit note increases it. Credit notes are used for overcharges or returns; debit notes for undercharges.

Is it mandatory to link a credit or debit note to an invoice?
Yes, credit and debit notes must reference the original tax invoice to which they pertain, as per Rule 53 of the CGST Rules.

Can unregistered recipients affect credit note adjustments?
Yes, if the incidence of tax has been passed on to an unregistered consumer, the supplier cannot claim a reduction in output tax liability.

Does a supplementary invoice qualify as a debit note?
Yes, as per the Explanation to Section 34, a supplementary invoice is treated as a debit note for GST purposes.

What details must be included in a credit or debit note?
As per Rule 53, details include supplier and recipient info, serial number, date, original invoice reference, taxable value, tax amount, and signature.

Can a credit or debit note be revised once issued?
No, but if there’s an error, a new credit or debit note can be issued with corrected particulars and appropriate cross-references.

Are credit/debit notes applicable to both goods and services?
Yes, Section 34 applies to supplies involving goods, services, or both.

Can a supplier issue a credit note after the annual return is filed?
No, the credit note must be declared before the earlier of the filing date of the annual return or 30th November following the financial year.

What happens if a credit note is declared late?
If declared after the prescribed deadline, the credit note will not be considered for reduction in output tax liability.

Can credit or debit notes be issued in electronic format?
Yes, they can be issued digitally, provided they are authenticated with a digital signature and meet all prescribed details under Rule 53.

What if the recipient does not reverse ITC related to a credit note?
The supplier will not be eligible to reduce their output tax liability unless the recipient reverses the corresponding ITC.

Can a credit note be issued for a zero-rated supply?
Yes, provided the original supply was made and the refund, if any, is adjusted accordingly to avoid double benefits.

Is there a format prescribed for credit and debit notes?
Yes, Rule 53 of the CGST Rules prescribes the mandatory particulars that must be included in a valid credit or debit note.

What is the legal backing for ITC reversal condition in Section 34(2)?
The ITC reversal requirement was introduced through a proviso added by the Finance Act, 2025 to prevent revenue leakage and mismatches.

Are credit and debit notes reflected in GSTR-1 and GSTR-3B?
Yes, details of both notes must be declared in GSTR-1, and their impact is reflected in GSTR-3B to adjust tax liability accordingly.

Can a recipient issue a credit or debit note under GST?
No, only the registered supplier who issued the original invoice can issue credit or debit notes under Section 34.

Does Section 34 apply to composition taxpayers?
No, since composition taxpayers cannot issue tax invoices or charge tax, they are not covered under Section 34 provisions.

Can one credit note cover multiple invoices?
Yes, a single credit note may refer to multiple invoices, as long as it clearly identifies each original invoice referenced.