Issue a credit note under Section 34 of the CGST Act against the original invoice, with the same taxable value and tax as the returned goods. Report it in GSTR-1 for the month of issue, in the table that applies to supplies made through an e-commerce operator. Do it before the statutory cut-off, and match each note to the marketplace return and settlement data.
Why a marketplace return needs a credit note
When you sell through a marketplace, the sale is reported in your GSTR-1 and the marketplace collects tax at source (TCS) and reports it in its own return. If the buyer returns the goods, the original supply is reduced. Unless you adjust it, you will have paid GST on a sale that did not stick.
Section 34 of the CGST Act is the basis for credit notes. The note should refer to the original invoice and carry the details prescribed in the CGST Rules. Confirm the latest wording and any amendments on the GST portal or with your tax adviser.
First, check how the original sale was reported
Before you create anything, establish three facts for each returned order:
- Who issued the invoice: you, or the marketplace system on your behalf.
- Where it was reported: GSTR-1 has a separate section for supplies made through an e-commerce operator, with its own amendment table. Table numbers have changed over time, so check the current GSTR-1 format on the portal.
- Which period: the return's month may differ from the sale's month.
Your credit note should mirror the way the original invoice was reported, not just the amount.
Steps to file the credit note in GSTR-1
- Pull the return list from the seller panel for the month, with order ID, original invoice number and return date.
- Confirm the goods actually came back and were accepted, using the return status and your warehouse receipt.
- Generate a credit note with its own serial number, date, original invoice reference, taxable value and tax split (CGST/SGST or IGST) exactly as on the invoice.
- Add it to the GSTR-1 for the month in which the credit note is issued, in the section and amendment table that apply to e-commerce operator supplies.
- Reconcile the totals with your books, then file. Keep the working file for audit.
If your accounting or invoicing software exports GSTR-1 JSON, check that the return lands in the ecommerce section and not under ordinary B2B or B2C tables. Your tax adviser can confirm how invoice-wise B2C notes should be shown.
Customer returns, RTO and lost shipments are different
| Case | What to check |
|---|---|
| Customer return after delivery | Supply happened; a credit note is normally needed. |
| RTO (undelivered, returned to you) | Depends on whether the supply was completed and when the invoice was raised. Confirm treatment with your tax adviser. |
| Lost or damaged in transit | Check the marketplace's claim terms in your seller agreement; GST treatment may differ from a return. |
| Partial return in a multi-item order | Issue the credit note only for the returned items' value and tax. |
Match every credit note to the settlement report
The settlement report shows what the marketplace actually reversed: item value, commission, fees and any TCS adjustment. For each credit note, check that the return in the settlement exists, the amounts agree, and the reversed commission matches your agreed terms in the rate card or seller agreement.
MarketplaceMetrics by Fundle reconciles returns against settlements and tracks recovery cases where a return was not credited or a fee was not reversed. Myntra Excel reports are reviewed today, and other marketplaces are in scope discussion.
Deadlines and common mistakes
Section 34 sets an outer date for declaring credit notes that reduce tax liability. Check the current cut-off on the GST portal, as it is tied to the financial year and annual return.
- Issuing the credit note in the wrong month and then amending it twice.
- Changing the taxable value because the refund to the customer was different.
- Missing returns that appear in settlement only in later cycles.
- Netting returns against sales instead of reporting them properly.
Worked example
Illustrative example only. Figures are not actual rates or results.
- Original invoice in June: taxable value ₹2,000, GST as per invoice ₹100, invoice value ₹2,100.
- Customer returns the item in July and the return is accepted on 8 July.
- Credit note dated July: taxable value ₹2,000, GST ₹100, referring to the June invoice.
- Report it in the July GSTR-1 under the e-commerce operator section, and the July settlement should show the item value reversed.
- If the settlement reverses only ₹1,900, investigate the difference. Do not change the credit note to match it.
Questions and answers
Can I issue a credit note for a marketplace return in a later month?
Yes, the credit note takes the date you issue it and goes into GSTR-1 for that month. It must still be declared before the Section 34 cut-off. Check the current date on the GST portal or with your tax adviser.
Does the marketplace issue the credit note for me?
It depends on who issued the original invoice. If your system issued it, you generally issue the credit note. Where the marketplace generates documents for you, check the seller agreement and portal documents, then confirm the reporting treatment with your adviser.
What happens to the TCS when an order is returned?
The marketplace reports TCS in its own return and adjusts it for returns. You should check the TCS shown against your account on the GST portal and reconcile it with your settlement reports. Do not rely on a memorised rate; confirm current rules.
How do I handle RTO shipments for GST?
Treatment depends on whether the supply was completed and when the invoice was raised. Document the RTO date, invoice and settlement entry, and have your tax adviser confirm whether a credit note or cancellation is the correct route.