A carton of expired strips goes back to your distributor, and three weeks later a credit note for ₹16,240 lands in your inbox. That credit note is the whole accounting story: it cuts your purchases, it cuts your input tax credit (ITC), and it has to reach the GST system before a fixed date. Stock that the distributor refuses to take back is a different case. That loss stays with you, and so does an ITC reversal.
Most chemists handle the physical return well and the books badly. The result shows up at year end as a distributor ledger that never matches, ITC that was claimed twice, and closing stock that includes medicines sitting in a bin for destruction. This guide walks through each type of return, the GST route the law allows, and the entries to pass, with one month of numbers from an example shop.
What does GST say about returning expired medicines?
CBIC answered this in Circular No. 72/46/2018-GST dated 26 October 2018, which was written specifically for time-expired drugs. It gives a retailer or wholesaler two ways to send expired stock back up the chain.
Return as a fresh supply. A regular registered chemist raises a tax invoice on the distributor, valued at the value on the original purchase invoice, and pays GST on it. The distributor takes ITC of that tax.
Return against a credit note. The chemist sends the goods back under a delivery challan, and the distributor or manufacturer issues a credit note under section 34 of the CGST Act.
A composition chemist uses the first route with a bill of supply, paying tax at the composition rate, and the distributor gets no ITC on it. An unregistered seller can return goods on any commercial document without charging tax. The circular also says its procedure can be applied where goods come back for reasons other than expiry, which is how breakage returns are usually handled too. You can read the full circular on the GST Council website.
Fresh invoice or credit note: which route should a chemist use?
In practice your distributor decides, because the credit note is theirs to issue. What matters for you is that your books follow whichever route was actually used.
Point | Fresh supply (your tax invoice) | Credit note (distributor's document) |
|---|---|---|
Document you issue | Tax invoice at original value | Delivery challan |
Effect on your GST | You pay output tax in GSTR-1 and GSTR-3B | Your ITC goes down when the credit note reaches your GSTR-2B |
Effect on distributor | Claims ITC on your invoice | Reduces output tax, if declared within the section 34 deadline |
Shows in your books as | A sale to the distributor | A purchase return |
The net tax effect for you is the same either way: the GST you claimed on the expired goods goes back. The difference is reporting. If you treat a credit note case as a sale, your turnover is overstated and your GSTR-1 shows a supply that never happened. If you treat a fresh-supply case as a purchase return, you have reversed ITC that you should instead have paid as output tax, and your GSTR-3B will not tie to GSTR-1.
Why the 30 November deadline matters for expiry returns
Section 34(2) says a credit note must be declared in the return for the month it is issued, but not later than 30 November following the end of the financial year in which the original supply was made, or the date the annual return is filed, whichever is earlier. For anything your distributor billed you in 2025-26, that date is 30 November 2026.
After that date the circular still allows a credit note to be issued, but the distributor cannot reduce their tax with it. That is why distributors become reluctant about old expiry claims in November, or ask you to return the goods on your own tax invoice instead. If you have a pile of expired stock bought last year, get it back before the month ends.
A worked example: one month of returns at a medical shop
Say you run a chemist shop in Vadodara, registered under GST in Gujarat, buying from a distributor in the same city. In November 2026 three things happen.
Expiry return. Strips bought in July 2025 have expired. Taxable value ₹14,500. They were billed at 12%, so GST was ₹1,740 and the bill line totalled ₹16,240.
Breakage return. Two cartons of syrup arrived cracked on a bill dated October 2025, after the rate cut, so GST was 5%. Taxable value ₹3,200, GST ₹160, total ₹3,360.
Rejected claim. Ointments bought in May 2025 for ₹6,800 plus 12% GST of ₹816 are past the company's return window. The distributor refuses them, and you send them for destruction.
The distributor issues one credit note for the first two: ₹16,240 + ₹3,360 = ₹19,600, made up of ₹17,700 taxable value and ₹1,900 GST (₹1,740 + ₹160). Your entry, with tax split equally between CGST and SGST:
Entry | Debit (₹) | Credit (₹) |
|---|---|---|
Distributor account | 19,600 | |
To Purchase returns | 17,700 | |
To Input CGST | 950 | |
To Input SGST | 950 |
For the destroyed ointments, the cost leaves stock and the ITC claimed on them is reversed, so the full ₹6,800 + ₹816 = ₹7,616 becomes a loss:
Entry | Debit (₹) | Credit (₹) |
|---|---|---|
Loss on expired stock | 7,616 | |
To Purchases (stock written off) | 6,800 | |
To Input CGST | 408 | |
To Input SGST | 408 |
Across the month your ITC falls by ₹1,900 + ₹816 = ₹2,716. Only ₹1,900 of that arrives through GSTR-2B. The ₹816 is a reversal you must report yourself in GSTR-3B, and it is the part chemists most often forget.
Which GST rate goes on a return of stock bought before September 2025?
The rate on the original bill. From 22 September 2025 most medicines moved from 12% to 5%, and a list of life-saving drugs became nil-rated. A credit note under section 34 corrects the tax charged on a specific earlier invoice, so for the July 2025 strips it carries 12%, not today's 5%. The same logic holds on the fresh-supply route, since the circular values the return at the original invoice value.
Check this line by line on distributor credit notes. A credit note at 5% against a 12% bill leaves part of the original ITC sitting in your books on goods you no longer hold, and the gap turns up in your reconciliation months later. Our earlier piece on rate difference credit notes under GST covers the mismatches that follow.
What if the distributor will not take expired stock back?
Then you carry the loss, and GST adds one step. Section 17(5)(h) blocks ITC on goods written off or destroyed. If you claimed ITC when you bought them, reverse it in GSTR-3B for the month you write the stock off, as in the ointment example.
For income tax the cost of expired stock is a trading loss, so keep the paperwork that proves it happened:
A list of products by batch number, expiry date, quantity and purchase rate.
The distributor's refusal, even a message or email.
A receipt from the biomedical waste agency or whoever collected the stock for destruction.
A stock list by batch makes this much easier, and it is the same discipline that keeps your Schedule H1 register in order.
How do breakage and short-expiry receipts differ from expiry returns?
Breakage found when a delivery is opened is best handled before you book the purchase in full. Ask the distributor for a credit note the same week, or accept the bill only for the good quantity. Either way, your purchase register should show the net quantity you actually received.
Short-expiry stock, which arrives with only a few months of shelf life left, is a commercial issue rather than a tax one. Many distributors will swap it or take it back. The accounting is identical to an expiry return, but it is far easier to settle when the batch and expiry were captured on the purchase entry. Our guide to batch tracking and expiry management for medical shops covers how to watch near-expiry stock before it becomes a write-off.
Month-end checks for expiry and breakage returns
Match every delivery challan sent for returns to a credit note received. Any challan older than 60 days without a credit note needs a follow-up call.
Check each credit note in your GSTR-2B against the original invoice: same batch, same rate, same value.
Confirm that destroyed or written-off stock has its ITC reversed in GSTR-3B.
Remove returned and destroyed quantities from closing stock, so the balance sheet does not carry medicines you no longer hold.
Before 30 November each year, list unsettled expiry claims on the previous year's purchases and push for credit notes.
Where hisabkitab fits in
hisabkitab records the batch number and expiry date on pharma invoices, along with your drug licence details, and its AI OCR reads distributor purchase bills straight into the books. When an expiry return happens, you are returning a known batch at a known rate instead of guessing from memory.
On the GST side, GSTR-2B AI reconciliation sets the distributor's credit notes against your purchase register, and the ITC reports show what has been claimed and reversed before you file GSTR-3B. The pharma accounting page has the full feature list.
Frequently asked questions
Is GST charged when a chemist returns expired medicines?
Only on the fresh-supply route, where you issue a tax invoice and pay GST at the original value. On the credit note route you send a delivery challan and charge no tax, and the distributor's credit note reduces your ITC instead.
Can a distributor issue a credit note for expiry after 30 November?
Yes, the circular allows it, but the distributor cannot reduce their output tax with it. Many distributors will then ask you to return the goods on your own tax invoice.
Do I need to reverse ITC on expired medicines I destroy myself?
Yes. Section 17(5)(h) blocks ITC on goods written off or destroyed, so reverse the ITC you claimed on them in GSTR-3B for the month of the write-off.
Which rate applies on a credit note for medicines bought at 12% before the rate cut?
The 12% charged on the original invoice. The credit note corrects that invoice, so it carries the same rate, even though the same medicine now attracts 5%.
Can a composition dealer return expired medicines?
Yes, using a bill of supply and paying tax at the composition rate. The distributor gets no ITC on that return.
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