The Goods and Services Tax (GST) framework is set for a major shift this October. As per the Finance Act No. 7 of 2025 and Notification No. 16/2025-CT, a significant change is coming for businesses that issue credit notes under GST. This update makes liability adjustments more system-driven and ties them directly to ITC (Input Tax Credit) reversal by the recipient.

What's Changing?

Until September 30, 2025

Suppliers could reduce their output tax liability simply by issuing a credit note. In the case of post-sale discounts, the reduction was subject to a customer declaration.

From October 1, 2025

This process becomes system-linked. Suppliers will only be able to reduce their GST liability if the recipient reverses the ITC related to that credit note in their GSTR-3B return.

In short, the supplier's reduction is conditional on the buyer's ITC reversal being completed in the GST system.

Applicability

• Applies only to credit notes issued on or after October 1, 2025.
• Credit notes issued before this date remain under the old framework, except for post-sale discounts, where the recipient's ITC reversal declaration continues to be mandatory.

Practical Implications for Businesses

ERP System Alignment – Businesses must update ERP/accounting systems to ensure credit notes are properly tracked until acknowledged by customers on the GST portal.

Customer Coordination – Finance teams need stronger coordination with customers to ensure timely ITC reversal, otherwise suppliers won't get liability benefits.

Documentation Safeguards – Although customer declarations won't be required after October 2025, retaining confirmations for high-value transactions is advisable.

Contract Revisions – Contracts should be updated to include clauses requiring customers to reverse ITC promptly once a credit note is issued.

Why This Matters

This change places responsibility on both suppliers and buyers to ensure GST compliance is in sync. Suppliers will no longer have unilateral control over liability reduction, making customer cooperation critical.

Action point: Businesses should start reviewing their processes now, update contracts, and train finance teams to avoid disruptions when the rule comes into effect.