Regarding Issuance of Credit Note for Incorrect GST Invoice Raised Under Forward Charge Mechanism

This query is : Resolved

Jomon P B (Querist)
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08 October 2025 We, a private limited company, raised an invoice for sponsorship of ₹10,000 in December 2024. Under the Reverse Charge Mechanism (RCM), the opposite company paid the GST. However, the sponsorship payment was actually received in March 2025. Unknowingly, we raised the invoice and paid GST under the Forward Charge Mechanism instead. We only discovered this discrepancy during the audit.

Can we issue a credit note for the incorrect invoice raised under the Forward Charge Mechanism for the sponsorship?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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08 October 2025 Yes, a credit note can be issued for the incorrect invoice raised under the Forward Charge Mechanism (FCM) if, under GST law, the sponsorship service should have been taxed under the Reverse Charge Mechanism (RCM) and the GST was actually paid by the recipient and not by the supplier. Issuing a credit note is both a standard and statutory way to correct tax charged in excess or issued under the wrong tax mechanism, as clarified in Section 34 of the CGST Act.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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08 October 2025 As per Section 34 of CGST Act, the supplier can issue a credit note where "tax charged in the invoice is more than the actual tax payable"—for instance, when GST was billed but not required under FCM because it ought to have been paid by the recipient under RCM.

The credit note will help adjust the output GST liability accordingly, provided this is done within prescribed time limits (generally by the return for October of the next financial year or before filing the annual return for that year, whichever is earlier).

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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08 October 2025 Issuing a credit note to nullify the wrongly raised GST bill under FCM is valid and necessary for GST compliance, since otherwise, tax could be paid twice on the same supply.

Credit notes for FY 2024–25 must be issued and declared in GST returns up to October 2025 (or by filing the annual return, whichever is earlier) for the supplier to adjust their tax liability.

Care must be taken that the recipient also reverses any input tax credit taken on the original FCM invoice, if applicable, to ensure proper reconciliation in GST returns.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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08 October 2025 Issue a credit note referencing the original FCM invoice, stating the reason as "wrongly charged GST under FCM, whereas RCM was applicable."

Report the credit note in the GST returns within the allowed timeline for FY 2024–25 (on or before October 2025).

Adjust the output tax liability using this credit note; the recipient should also adjust any ITC claimed based on the original invoice.

This process will regularize the GST impact and ensure no double taxation, aligning your compliance with GST law for sponsorship transactions under RCM.

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