Hotel gave you a credit note, the client wants cash back

Your client cancelled a Kashmir booking after the news, and the houseboat and two hotels sent back credit notes instead of money. Your client wants cash in his account, not a voucher for a return trip. This is the credit note instead of a refund problem every operator runs into sooner or later, and the usual mistake is deducting the hotel's credit from the client's money, as if that credit were the client's to begin with.

A supplier's credit note is not a cancellation charge and not the client's currency. It is yours: your asset to carry, your risk to resell. What you owe the client comes from what you can show you actually lost, not from whatever the supplier handed back. This post lays out the decision rule, the paperwork, and the templates.

A hotel credit note and a GST credit note are not the same thing

A hotel's future-stay credit note is the hotel keeping your advance and promising a room later. A GST credit note under section 34 of the CGST Act is a tax document that reduces an invoice's value, against a deficient service or an overcharge. It must be declared in a return no later than 30 November after the end of the financial year of the original supply, or the annual return date if that is earlier, and since 1 October 2025 the supplier can't use it to cut output tax if a registered recipient hasn't reversed the matching input credit. None of that is what a hotel means by "use it for your next booking."

If the hotel had only issued a receipt voucher for your advance and never raised an invoice, a cash refund comes with a refund voucher under CGST section 31(3)(e) and Rule 51 instead, showing among other things the hotel's GSTIN, a serial number of up to 16 characters, the date, the refund amount, the tax rate and a signature. A hotel that says "credit note" but means "stay with us again" has issued neither. Get the actual document, in writing.

What the government actually said after Pahalgam

On 23 April 2025, the day after the Pahalgam attack, the Tourism Minister posted on X that he had spoken to the concerned authorities and urged airlines, hotels and tour operators to allow full refunds without hassle. That is a request. "Urged" is not "ordered," and nothing in that statement is shown to bind a private hotel.

Separately, a Ministry of Tourism and J&K Tourism circular was reported, telling providers to waive cancellation fees and refund bookings. Even so, the same report said several Kashmir hotels, including five-stars, offered credit notes instead, delayed refunds by up to three weeks or refused, some saying the advances were already invested. The circular's exact text and legal force aren't established from what's been reported.

Your client will quote the minister's line at you. Quote it back accurately: a public request to suppliers, not a statute that makes a hotel's credit note unenforceable.

What consumer commissions do with credit-only refunds

In the three orders below, the trips never ran. The commissions ordered cash over credit offers, including where the agency argued its contract barred cash refunds, and refused deductions the operator couldn't back with documents.

Order	What was offered	What was ordered
Kesari Tours v. Dashrathi, Karnataka SCDRC, 22 Dec 2023	Credit shell of ₹3,68,924 after a ₹1,22,076 deduction	Full refund; deductions refused, as no documents of bookings made were produced
Kolkata DCDRC, 29 Sep 2026	Credit voucher; agency argued its contract barred cash refunds	₹2,00,000 refund + ₹20,000 compensation + ₹10,000 costs
Kerala DCDRC, 31 Aug 2026 (ex parte)	Repeated rescheduling, last to April 2023; no refund paid	₹82,500 refund + ₹25,000 compensation + ₹5,000 costs

In Kesari Tours, a senior-citizen couple cancelled in writing in March 2020, afraid of Covid, and wanted cash. The State Commission held it was the operator's "bounden duty" to accept the cancellation and refund the full amount, and refused the deductions for administrative and rescheduling charges because the operator produced no documents showing it had made any air, transport, hotel or sightseeing arrangements before the cancellation. The Kolkata commission said "processing refunds following service cancellations remains a primary obligation of any service provider." The Kerala order (undefended, and reported second-hand) treated more than three years of postponement, with the trip never run, as deficiency in service and an unfair trade practice.

The Consumer Protection Act, 2019 gives the yardsticks: "deficiency" is any fault, shortcoming or inadequacy in performing a service (s.2(11)); lodging is a "service" (s.2(42)); an "unfair contract" includes a penalty wholly disproportionate to the loss (s.2(46)); a commission can order charges returned with interest, and compensation (s.39(1)(c)/(d)). A complaint has two years from the date the cause of action arises (s.69(1)). When that date falls depends on the facts, so don't count on a long-dated credit running the clock out.

Fear cancellation or a trip that cannot run: decide which one you have

These get different answers. If travel is actually barred or the destination is shut, the contract may well be frustrated. Section 56 of the Indian Contract Act voids a contract that becomes impossible, and section 65 requires anyone who received an advantage under it to restore it or compensate for it.

In AIS Holidays v. Yorkers Holidays, a Delhi district commercial court decreed ₹25,00,000 plus 8% a year interest for a travel company against the intermediary it had paid for Penang rooms, after the lockdown stopped the trip. The intermediary couldn't show it had passed the advance on to the hotel, and the court held that once performance was frustrated, the "non-refundable" condition "can not be enforced." That is a single district judgment on lockdown facts, not a general rule, but it shows the argument working: in a frustrated trip, you can press your supplier for cash too, not just accept a credit.

If the destination is open and the client is cancelling from fear, your own slab governs, built from what suppliers actually refund. A supplier's credit is still not a loss, though, so don't deduct it from what you owe the client. Kesari Tours is the warning: that couple cancelled out of fear about two weeks before the national lockdown (the tour dates later fell inside it), and the commission still refused the operator's deductions because it had documented none of them.

When you may offer a credit, and when you pay cash

Default to cash. Offer your own credit only when it meets all six:

1. The client chooses it in writing. Never make it the default refund.
2. It carries an uplift over the cash figure, so choosing it is genuinely better, not just easier for you.
3. It's usable on any trip you sell, not tied to the one hotel that sent you a credit.
4. It's transferable to one named family member.
5. It has a fixed expiry date.
6. Any unused balance is paid out in cash automatically on that date, without the client having to ask.

The Supreme Court's 2020 airline credit-shell order is a useful design template, though it applied only to airline tickets in the Covid lockdown and expired 31 March 2021: transferable "to any person including the travel agent," its value rising 0.5% of face value a month to 30 June 2020 and 0.75% a month after that, with any unused balance refunded once the window closed. Not law for hotels, and long expired, but it's what a fair credit looks like: transferable, with an uplift, and a hard cash-out date.

Example: Say you sold a couple a 5-night Srinagar-Gulmarg-Pahalgam package for ₹92,000 (GST aside; see the GST section below). They paid a ₹50,000 advance; your terms let you keep documented forfeiture plus a ₹3,000 fee for a 15-to-29-day cancellation. They cancel 20 days out after a news scare; the destination is open, travel isn't barred.

Of the ₹50,000, you'd forwarded ₹40,000 to suppliers (₹6,000 houseboat, ₹9,000 Srinagar, ₹14,000 Gulmarg, ₹7,000 Pahalgam, ₹4,000 cab) and held ₹10,000 back. The suppliers answer differently: the houseboat returns ₹6,000 cash; Srinagar sends a ₹9,000 credit, 12 months; Gulmarg returns ₹7,000 cash plus a ₹7,000 credit (excludes 20 Dec-5 Jan); Pahalgam sends a ₹7,000 credit valid 6 months; the cab operator returns ₹3,000 cash and keeps ₹1,000 as a documented charge.

Cash recovered: ₹16,000. Credits held: ₹23,000. Documented forfeiture: ₹1,000. Together, the full ₹40,000.

The wrong answer treats the ₹23,000 of credits as forfeited too: deduct ₹27,000, refund only ₹23,000. That ₹23,000 was never lost, and a deduction you can't document is the kind the commission refused in Kesari Tours.

The cash answer: refund owed = 50,000 - 1,000 - 3,000 = ₹46,000. You hold ₹26,000 cash, so you float ₹20,000 against ₹23,000 of hotel credits. Used at face value, you net ₹3,000 (your fee); if the 6-month Pahalgam credit expires unused, you're down ₹4,000 instead.

The client-credit answer, only if chosen: an agency credit of ₹50,000, waiving your fee and absorbing the cab charge, costs you ₹4,000 (about 8.7%) more than cash. Valid 12 months, transferable, balance auto-paid at expiry.

How much float a cancellation wave eats

Scale that up: 30 similar bookings cancel in one week, 20 take cash, 10 take the agency credit. Cash float needed: ₹4,00,000 (40% of those clients' advances). Hotel credits on your books: ₹6,90,000, of which 6-month credits alone are ₹2,10,000. Agency credits owed to the 10 who chose option B: ₹5,00,000, each with its own cash-out date.

If you place ₹1,15,000 a month back with these hotels once bookings return, the credits take 6 months to use up at face value. The 6-month credits go first, or you ask the hotel to extend them now, while it still wants your goodwill.

Run a register, not a memory. One line per credit:

• Supplier and property
• Credit amount and date issued
• Expiry date and any blackout dates
• Transferable to any guest you book (yes/no)
• Linked cancelled booking
• Client refunded in cash (yes/no, date)
• Applied against a later booking (ID, amount)
• Balance remaining

Turning a hotel credit back into money

A hotel credit is worth what you manage to resell it for. Ask for cash first, then for terms that make the rest usable, not a souvenir: a credit in your agency's name (not the cancelled guest), 12 months with no peak blackout, use across sister properties, a cash payout of any balance at expiry, and the credit on letterhead with GSTIN and amount. If the hotel says the advance was "already passed on," ask for that party's receipt. Onward payment is the claim the intermediary in AIS Holidays v. Yorkers couldn't prove.

To: [Hotel/Houseboat name], [Property]
From: [Agency name], GSTIN [number]

Re: Booking ref [ID], guest [name], dates [DD/MM-DD/MM/YYYY], advance ₹[amount] paid on [date]

We request:
1. A cash refund of [X]% of the advance now.
2. For the balance, a credit in [Agency name]'s name, usable for any guest we book,
   not restricted to the guest above.
3. Validity of at least 12 months from today, with no blackout on peak dates.
4. Use across your sister properties, if any.
5. A cash refund of any balance of this credit still unused on [expiry date],
   paid without our needing to ask.
6. The credit issued on your letterhead, showing your GSTIN, this booking
   reference, the amount, and whether GST was charged on the original advance.

If this advance was passed on to another party, please share their receipt.

[Agency name] / [Contact]

Once bookings for that destination resume, place your next clients at that property and settle with the credit, starting with whichever one expires soonest.

The clause: supplier refunds by credit

This clause stops a supplier's credit being read as a cancellation charge against the client, and makes any client-facing credit opt-in with a hard cash-out date.

[Agency name] - Terms and Conditions: Supplier credits and your refund

1. If you cancel, or we cancel because the trip cannot run, your refund follows
   Clause [X] (cancellation charges). If a supplier returns our advance as a
   credit or voucher instead of money, that credit is our risk. It is not a
   cancellation charge and is not deducted from your refund.

2. We will give you a written choice: (a) a refund of the amount due under
   Clause [X], paid to the account you paid from within [10] working days of
   your written choice, or (b) a [Agency] travel credit worth [amount due
   plus __%], usable for any trip we sell, transferable to one named family
   member, valid until [date].

3. We issue a travel credit only if you choose it in writing. Any balance
   unused on [expiry date] is refunded to you in money within [10] working
   days, without your asking.

4. If the trip cannot run for reasons outside either party's control, we
   refund everything you paid less amounts we have actually and irrecoverably
   paid to suppliers, each supported by the supplier's written statement,
   which we will share with you.

5. GST and TCS on cancellation follow Clause [Y].

Line 1 stops a supplier's credit being read as a deduction from the client's refund. Line 2 fixes a refund date. Line 3 makes the credit opt-in with a built-in cash-out. Line 4 is the documentary proof the commission found missing in Kesari Tours.

Careful: This clause may still not survive a trip-cannot-run case. The Kolkata commission ordered a full cash refund in 2026 even though the agency argued its contract barred cash refunds. Write the rest of your cancellation terms to hold up in consumer court around this clause, not in place of it.

The message that offers the client a choice

Hi [Client name], update on your refund for [booking ref].

The Tourism Minister urged airlines, hotels and tour operators to allow full
refunds after [event]. Most of our suppliers have responded with part cash
and part credit, not full cash.

Your cash refund: ₹[amount], after [itemised deduction, e.g. ₹1,000 cab
cancellation charge, ₹3,000 our fee]. This reaches [account] by [date]. No
deduction has been made for any hotel credit; that one is ours to carry.

You also have the option of a [Agency] travel credit of ₹[amount], valid
[period] on any trip we sell, transferable to one family member, with any
unused balance paid back automatically on [date].

Reply A for cash, or B for the credit, in writing.

Booking the credit, and the GST on the refund

Keep every hotel credit in your Supplier Advance Paid ledger, one line per hotel with its expiry, never netted against the client's account; they're two separate entries.

On the client side: a refund voucher if you'd only raised a receipt voucher, or a credit note if you'd already invoiced. If you'd invoiced and a client's agency credit is cashed out late, watch the section 34 cut-off (as of October 2026, 30 November after the end of the financial year of the original invoice, or the annual return date if earlier). Whether you can still reduce your output tax after that date, and how an expired credit is treated for tax, are questions for your CA; the mechanics sit in the GST and TCS on cancelled bookings guide.

Common questions

Hotel ne credit note diya, client ko refund kaise karu?

Keep the hotel's credit on your own books, not the client's. Work out what you owe from your slab and any documented loss, pay that in cash, and offer your own credit only if the client chooses it in writing, with an uplift and a fixed cash-out date.

Is a credit voucher instead of a cash refund legal in India?

No single rule bans it outright, but where a trip never ran, commissions have ordered cash over credit offers: Kesari Tours in 2023 refused undocumented deductions and ordered a full refund, and Kolkata's 2026 order did so although the agency argued its contract barred cash refunds. As of October 2026, we found no order saying a client's written acceptance of a credit will always hold, so build for the safer case: an automatic cash-out.

Can I deduct the hotel's credit note from the client's refund?

Don't. A credit is not a forfeiture, so it isn't a loss you can show. In Kesari Tours, the Karnataka State Commission refused the operator's deductions because it produced no documents of any bookings actually made. Deduct only what you can show, on paper, that a supplier genuinely kept.

Did the government order hotels to refund after Pahalgam?

Not in a way shown to bind a private hotel. The minister said he had urged airlines, hotels and tour operators to allow full refunds. A separate circular reportedly told providers to waive cancellation fees and refund, but it is known only from a press report, and its text and legal force are not established. Neither is a statute, and several Kashmir hotels offered credit notes regardless.

The short version

• A supplier's credit note is your asset and your risk, never the client's money and never a cancellation charge.
• Don't deduct a credit from a client's refund; deduct only losses you can prove on paper, since undocumented deductions are what Kesari Tours lost on.
• Offer your own credit only if the client chooses it in writing, with an uplift, a fixed expiry, and an automatic cash-out of whatever's unused.
• If travel is barred or the destination is shut, the contract may be frustrated, and you have grounds to ask your supplier for cash too, not another credit.
• If the client is cancelling from fear and the destination is open, your slab applies, but the hotel's credit still can't count as your loss.
• A minister "urging" hotels to refund is not a statute; quote it accurately to clients, don't treat it as an order.
• If you'd invoiced, check the section 34 credit-note cut-off before cashing out a client credit late, and confirm the final treatment with your CA.