Set off of Debtors and Creditors

[Jitendra Sahu]

Dear Seniors and Colleague

I need your advice on Creditors/Debtors balance adjustment without payment..
1. Our creditors are agree to give Credit note to waive off all the outstanding without any GST effect means 'Financial Credit Note'

2. Similarity our debtors are also not in a position to pay and we accept to issue Credit Note from our Side without any GST effect means ' Financial Credit Note.'

What should precautions we have to take and what type of documentation we have to maintain for that.
Please suggest with refering some laws.

[YAGAY andSUN]

These types of transactions are allowed in Income Tax Act, GST Laws but under the provisions of GST Laws on interconnected units if such book adjustment is done, then on such books adjustments GST at applicable rate will be applicable.

AI Summary

Financial credit notes may trigger GST when used for intercompany book adjustments despite income tax recognition. Use of financial credit notes to waive creditor or debtor balances is recognised for income-tax and accounting purposes, but under GST laws book adjustments between interconnected units effected by such financial credit notes may attract GST at the applicable rate.