TDS on Credit Note ISSUED

Did he not issue the certificate? What is the procedure if the buyer doesnt give seller TDS certificate? You must have followed that procedure if one exists

Certificate is already issued by the buyer and also reflected in 26AS while filing the ITR, but the amount of TDS is excess as the credit note issued in later month doesn't adjusted against the same. Now , AO says that as the TDS on credit note value is not adjusted and they will not consider it as excess TDS deducted (due to credit not) and does not allow to supplier.

Give me a second I read that just now

TDS effect in Debit note [Resolved] | Accounts (caclubindia.com)

There is no TDS reversal mechanism in Indian tax law for credit notes. Here is how it actually works.

When a credit note is issued after TDS has been deducted:
The TDS you deducted on the original invoice is final. You cannot reverse the TDS already deposited with the government. The supplier will account for the reduced income in their own return and the TDS credit in Form 26AS will offset their total tax liability. They may even get a refund if the net tax payable after the credit note adjustment is lower than TDS already credited.

Your options for future transactions:
If you adjust the credit note against a future invoice from the same supplier, deduct TDS on the net invoice amount (new invoice minus credit note). For example: new invoice Rs 3 lakh, credit note Rs 1 lakh, TDS is deducted on Rs 2 lakh.

What NOT to do:
- Do not file a TDS correction statement reversing the original TDS, that creates a deductee ledger mismatch
- Do not deduct TDS on the full new invoice if the credit note is being settled simultaneously

One exception: If the original invoice was never paid and you are cancelling it entirely via credit note before depositing TDS, you can avoid depositing TDS on the cancelled portion (since the credit event never materially occurred).

For the full TDS rate chart including Sections 194J, 194C, and 194H, and how credit adjustments interact with each, this [TDS on partner payments and firm obligations guide](https://taxgarden.in/blog/section-194t-tds-partner-payments-firm-llp-india) covers the mechanics of TDS deduction events and timelines.

How to handle excess TDS after a credit note:

• Sec 199 / Rule 37BA: credit for TDS is given to the deductee in the year the related income is assessable. The full TDS deducted by the buyer stays creditable to you, even though your income is reduced by the credit note. You get the excess as a refund or set-off in your ITR. There's no need to return the TDS to the buyer.

• Commercial settlement: the buyer deducted TDS on the full bill but owes you less now. Settle the net amount: your receivable = bill − credit note − TDS already deducted. Adjust it in the next payment, or settle in cash.

• Buyer's side: the buyer can adjust excess deduction against future TDS on payments to you in the same FY (CBDT Circular 285/1980 principle on adjusting excess deduction; also allowed through a correction statement). Otherwise it remains as deposited, and you claim it.

• Make sure the 26AS gross receipts versus your books difference is explained by the credit note in your records, since CPC compares receipts.

A subsequent credit note does not, by itself, cancel TDS already deducted and deposited on the original invoice. Under section 199 and Rule 37BA, TDS credit is generally given to the person from whose income tax was deducted, in the assessment year in which that income is assessable. If the full invoice income was recognised and the TDS is reflected in Form 26AS/Form 16A, the credit is not automatically restricted merely because a later credit note reduced the consideration.

The key issue is whether the credit note was a genuine reduction for rejected work and whether the corresponding income was reversed or reduced in the books and tax computation. If the income was reduced, support the claim with the invoice, credit note, rejection/acceptance records, ledger entries, GSTR-1/GST treatment, Form 26AS and TDS certificate, and request the Assessing Officer to allow the TDS actually deposited. The deductor’s TDS statement and certificate should also be checked for the correct PAN, amount and assessment year. If income was offered only on the net amount, explain why the gross TDS credit still belongs to the assessee; the department’s objection may then require a fact-specific response.

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