TDS on Credit Note ISSUED

Hello,

In one of my case (They are in Construction work) "The buyer has deducted TDS on Sales bill and later on after 2 months we have issued credit note for some amount of work rejected by the client. But they have not make any adjustment in TDS for the same. We have filed ITR (FY 2022-23) and claimed the TDS of Invoice without Adjustment of Credit Note. Sales invoice and Credit Note are not same month. Now TDS department are arguing that they will not allow to claim TDS for the credit note value.

Need guidance on the same. As the deducted has paid all TDS and also reflecting it in 26AS and certificate for the TDS is also issued by the deductor.

The sales bill issued is also reflecting in GSTR 1.

 

 

Replies (4)
Quick Summary
TDS was deducted on full invoice value, but later a credit note was issued for rejected work. Buyer did not adjust TDS. Taxpayer claimed full TDS as per 26AS and certificate. Issue is whether TDS credit should be reduced due to post-invoice credit note.

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.

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