Sales & purchase return in GST
Sales & Purchase Return in GST: Complete Guide
In this post, we will discuss what a goods return is and how it is handled under GST. We’ll cover the process for both registered and unregistered buyers, how e-commerce returns are managed, and the impact on tax liability.
Let’s look at each section in detail:
What is a Goods Return?
A goods return, also called a purchase return, simply means sending back the items you bought to the seller. This usually happens when the goods are damaged, not up to the mark, or when extra quantities were ordered by mistake.
Goods Return under GST
1.Goods returned by registered buyer
When a registered buyer returns goods, the seller has to issue a credit note for those returned items. This credit note must be reported in the seller’s GSTR-1 for the same month in which it is issued.
For example, Ajay sold 100 notebooks at Rs. 10 each to Vijay on 28 May 2025. Later, Vijay noticed that 10 pens were defective and returned them on 3 June 2025. So Ajay will issue a credit note for Rs. 100 on 3 June. This credit note will be shown in Ajay’s GSTR-1 for June.
Once Ajay files it, the entry will automatically appear in Vijay’s GSTR-2B and GSTR-2A. Vijay can then include this in his GSTR-3B.
2.Goods returned by unregistered buyers
When an unregistered buyer returns goods, the seller has to show all such sales returns together in GSTR-1. There is no need to give the details invoice by invoice. The seller only has to mention the total value of returns for intra-state and inter-state sales separately. If the returns came through an e-commerce platform, that also has to be shown separately.
When should a credit note be issued?
The credit note has to be issued and reported within the allowed time. This is based on whichever happens first:
- September of the next financial year
OR - The date on which you file the annual return
In our example, Ajay issued a credit note on 3rd October 2025. He must report it by September 2026. If he files his annual return for 2025-26 on 31st July 2026, then 31st July becomes the last date to show the credit note.
Goods Return in E commerce
Goods return is quite frequent in online shopping. Customers return items for reasons like wrong size, mismatch in product description or simply a change of mind. Easy return policies are one of the biggest reasons for high online sales. Sellers can also follow simple practices to reduce returns.
E-commerce Sellers
In e-commerce sales, the platform collects money from the buyer and pays the seller after deducting marketplace charges.
For example, Mr Kumar sells ready made clothes on Amazon. He receives an order for Rs 10,000 including GST. Amazon charges Rs 200 as commission. Goods worth Rs 2,500 are returned by the buyer. After adjusting the return value and commission, Amazon pays Mr Kumar Rs 7,300 which is 10,000 – 2,500 – 200.
Tax Collected at Source
If the total payments to the seller exceed 2.5 lakh rupees, the e-commerce operator deducts 1 percent TCS on the net value. In the above example, Amazon will deduct Rs 100 as TCS which is 1 percent of Rs 10,000.
If Kumar sells to unregistered buyers, he will report the returns in GSTR 1 in a consolidated way. If he sells to a registered buyer, he must issue a credit note and report each one separately.
Adjustment of Tax Liability on Goods Return
When a customer returns goods, the seller’s GST liability comes down and the buyer’s ITC shown in GSTR 2A and GSTR 2B will be reversed.
If the tax cost has already been passed to someone else and the ITC cannot be reversed, then the seller cannot reduce the tax liability.
For unregistered buyers, the seller must refund the full amount including GST. If the refund is not given, even though the goods are returned, the tax liability will not reduce. This follows the principle of unjust enrichment, which means no one should gain at another person’s cost.
Transitional Provisions
These rules apply when goods were sold before GST and returned after GST came into effect. When the sale happened, Excise and VAT were charged. When the return happens, GST applies.
To understand it better, let us look at a simple example using updated dates.
- Seller: Mr. Ajay
- Buyer: Mr. Vijay
- Date of sale: 25 June 2025
- Net amount: Rs. 10,000
- VAT rate: 14.5 percent
- GST rate: 18 percent
- GST start date (for this example): 1 July 2025
- Goods returned on: 31 August 2025
Taxable Goods
When a Registered Buyer Returns the Goods
If a registered buyer returns goods on which VAT was already paid earlier, the return will be treated as a deemed supply. So the buyer returning the goods must pay GST on the return.
Why does the buyer have to pay GST?
Because the buyer had already claimed VAT input credit in the old system. This credit may have been used or carried forward to GST. Allowing the seller to reduce GST liability now would lead to unjust enrichment.
To avoid this, the buyer pays GST on the return and the seller can claim this GST as input credit.
Example 1: Registered Buyer
Vijay will pay 18 percent GST on the returned goods. Earlier, he had already claimed 14.5 percent VAT. Ajay can take the 18 percent GST as ITC.
When an Unregistered Buyer Returns the Goods
If an unregistered customer returns the goods, the seller may get a refund of the VAT paid earlier, but only if all these conditions are met:
- Goods were sold not more than 6 months before 1 July 2025
- Goods were returned within 6 months from 1 July 2025
- The tax officer is able to identify the goods
Example 2: Unregistered Buyer
If Vijay is unregistered, Ajay can get a refund of the 14.5 percent VAT paid earlier.
Example 3: Goods Returned After 6 Months
If the goods are returned after the 6 month window, for example on 2 February 2026, Ajay will not get any VAT refund.
Exempted Goods
Exempted goods are those taxed at 0 percent. Many basic food items are exempt under GST as well as the earlier tax system.
These rules mainly matter if the product was exempt earlier but became taxable under GST later.>
Exempted Goods Returned by Registered or Unregistered Buyers
If the goods were exempt in the earlier tax regime, no tax is payable on their return, whether the buyer is registered or not.
Because there was no input tax credit involved earlier. So there is no reversal needed and no chance of unjust enrichment.
Example 4: Registered Buyer
Both Ajay and Vijay are registered and the goods were exempt earlier. So there is no tax impact when the goods are returned.
Example 5: Unregistered Buyer
If Vijay is unregistered and the goods were exempt earlier, there is no GST implication on return.
Conclusion
Goods returns are common in retail and e-commerce. Businesses should record them carefully to avoid any GST mismatch.
Make sure returns from registered and unregistered customers are tracked separately because they must be reported separately in GSTR 1.
We have reached the end of this post. If you have any questions regarding this post, leave them in the space below. We’re happy to help!
