Purchase Credit Memo or Return Order to Foreign Vendor

Purchasing goods in India from a place outside India is import of goods. For services, if the supplier is located outside India, the recipient is located in India and the place of supply is in India, then it is called Import of services. Purchase of goods and/or services from a foreign vendor are subject to reverse charge i.e. the person importing goods or services is required to remit tax to the Government.

A buyer may have to return the goods or issue credit note due to various reasons like damaged goods, quality issues etc.

Process for purchase returns to foreign vendor has been explained in this document.

Create a purchase return order or credit memo

  1. Choose the Search for Page or Report icon, enter Purchase Return Order or Credit Memo, and then choose the related link.
  2. Select Vendor on Purchase Credit Memo header, GST vendor type should be Import.
  3. Select Item Code for goods, G/L Account for Service purchase, Fixed Asset for Fixed Asset purchase on Purchase Credit Memo line. GST Group Code, HSN/SAC Code and GST Credit value should be selected as Availment if the tax input credit is available or else Non-Availment on the Item, G/L Account, Fixed Asset.
  4. GST Credit option can be changed on Purchase Credit Memo line.
  • Purchase Credit Memo or Return Order for Imported Goods or Fixed asset, IGST is to be calculated on GST Assessable Value + Basic Custom Duty.

For example, purchase credit memo or return order is issued for INR 10000, Custom Duty INR 1000, GST Assessable Value INR 11000 (IGST @18%) has to be charged. Calculation base: (18% on 11,000 GST Assessable Value + 1,000 BCD) (12,000*18%).

  • GST calculation will appear in the Fact Box, as following:

    Component Amount
    GST Base Amount 11,000
    Custom Duty (BCD) 1000
    IGST 2160
  • GL Entries for purchase credit memo or return order for imported goods or fixed asset where input tax credit is available, will be as following:

    Particulars Amount
    Vendor Account (Transactional Value) 10000
    IGST Refund Account 2160
    IGST Receivable Account -2160
    Purchase Account or Fixed Asset increase during the year (Transactional Value) -10000
  • GL Entries for purchase credit memo or return order for imported goods or fixed asset where input tax credit is not available, will be as following:

    Particulars Amount
    Vendor Account (Transactional Value) 10000
    IGST Refund Account 2160
    Purchase Account or Fixed Asset increase during the year (Transactional Value) -12160

See Also

Purchase Return to Vendor with Overseas Place of Supply

Note

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