The Federal Board of Revenue (FBR) has reiterated strict documentation and approval requirements for cancellation or return of taxable supplies under Rule 20 of the Sales Tax Rules, 2006, updated for Tax Year 2026.
This rule governs how debit notes and credit notes must be issued, ensuring accurate adjustment of sales tax liability, preventing misuse of input tax, and strengthening audit trails.
🧾 When Does Rule 20 Apply?
Rule 20 becomes applicable when:
• A taxable supply has already been made, and
• The supply, wholly or partly, is:
o Cancelled, or
o Returned by the buyer/recipient
The procedure differs depending on whether the buyer is registered or unregistered under the Sales Tax Act, 1990.
📄 Debit Note Requirement (Registered Buyers)
✅ Who Issues the Debit Note?
• The buyer or recipient of goods or services
• Applicable only when the buyer is registered
📝 Mandatory Contents of a Debit Note
The debit note must be issued in duplicate and must clearly state:
• 🔹 Name & National Tax Number (NTN) of the recipient
• 🔹 Name & National Tax Number (NTN) of the supplier
• 🔹 Number and date of the original sales tax invoice
• 🔹 Quantity returned or cancelled
• 🔹 Value of supply, based on the original tax invoice
• 🔹 Amount of sales tax paid on the returned/cancelled supply
• 🔹 Reason for issuance of the debit note
• 🔹 Signature and official seal of the authorized issuing person
📬 Handling of Debit Note Copies
To maintain proper records:
• 📨 Original copy must be sent to the supplier
• 📁 Duplicate copy must be retained by the buyer for record and audit purposes
🧮 Credit Note for Unregistered Buyers
⚠ Special Rule Applies
If the cancellation or return involves an unregistered person:
• The supplier must issue a credit note
• The credit note must contain the same particulars as required for a debit note
🚨 Prior Approval Is Mandatory
• A credit note in such cases can be issued only with prior approval of the Commissioner Inland Revenue
• Without approval, sales tax adjustment is not allowed
❓ Frequently Asked Questions (FAQs)
🔹 Can sales tax be adjusted without a debit or credit note?
No. Proper documentation under Rule 20 is mandatory for any tax adjustment.
🔹 Is partial return of goods allowed?
Yes. Debit notes can be issued for partial cancellations or returns, provided quantities and values are clearly stated.
🔹 Why is Commissioner’s approval required for unregistered buyers?
To prevent misuse of credit notes and ensure tax neutrality where buyer records are unavailable.
✅ Key Compliance Takeaways
• Always issue debit notes for returns by registered buyers
• Obtain Commissioner approval before issuing credit notes to unregistered persons
• Ensure complete and accurate particulars to avoid audit objections
• Maintain records for reconciliation and future verification
Disclaimer: This article is for general informational purposes only and summarizes Rule 20 of the Sales Tax Rules, 2006 as updated for tax year 2026. It does not constitute legal, tax, or professional advice. Readers should refer to the relevant law, FBR notifications, or consult a qualified tax professional before taking any action.