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October 31, 2020

Taxpayers to mandatorily declare HSN codes in GST Tax Invoices from 1st April, 2021

by CA Shivam Jaiswal in GST

Taxpayers to mandatorily declare HSN codes in GST Tax Invoices from 1st April, 2021

Harmonized System of Nomenclature or the HSN code is a system that was introduced for the systematic classification of goods all over the country or world. It is a 6-digit uniform code that categorises and classifies more than 5,000 products. Notably, the codes are accepted worldwide. The codes are developed by the World Customs Organisation (WCO), and they came into effect in 1988. There are about 5,000 commodity groups which are identified by a six-digit code. The codes are arranged in a logical and legal structure which is supported by well-defined rules to achieve uniformity in classification.

What is the format of the HSN Code?

HSN Code acts as an internationally accepted goods classification system, used in over 200 countries. Under the HSN code system, goods have been classified into 97 different chapters. HSN code consists of 6 digits.

  • The first two digits of the HSN codes represent the HSN code chapter.
  • The heading of the goods is represented in the third and fourth digit of the HSN code.
  • The sub-heading of the goods is represented in the fifth and sixth digit of the HSN code

For instance, HSN code for Handkerchiefs made of Textile matters is 62.13.90

  • First two digits (62) represent the chapter number for Articles of apparel and clothing accessories, not knitted or crocheted.
  • Next two digits (13) represent the heading number for handkerchiefs.
  • Last two digits (90) is the product code for handkerchiefs made of other textile materials.

India has 2 more digits for a deeper classification.

  • If the handkerchiefs are made from a man-made fibre, then the HSN code is 62.13.90.10.
  • If the handkerchiefs are made from silk or waste from silk., then the HSN code is 62.13.90.90.

What do you mean by the SAC in GST?

Like goods, services are also classified uniformly for recognition, measurement and taxation. Codes for services are called Services Accounting Code or SAC.

For instance, SAC for Legal documentation and certification services concerning patents, copyrights and other intellectual property rights is 998213

  • The first two digits are same for all services i.e. 99
  • The next two digits (82) represent the major nature of service, in this case, legal services
  • The last two digits (13) represent detailed nature of service, i.e., legal documentation for patents etc.

Disclosing HSN code under GST

With the HSN code acting as a universal classification for goods, the Indian Government had adopted the use of HSN code for classification of goods under GST and levy of GST.

Initially, those with a turnover of less than Rs 1.5 Crores under GST were not required to follow HSN. Those with a turnover exceeding Rs 1.5 Crores but less than Rs 5 Crores had to declare the 2-digit HSN codes. Those with a turnover exceeding Rs 5 Crores had to declare the 4-digit HSN codes. Those dealers who were into imports or exports had to mandatorily follow the 8-digit HSN codes.

Notification No. 78/2020 – Central Tax dated 15th October, 2020 and Notification No. 06/2020–Integrated Tax dated 15th October, 2020

The Ministry of Finance vide Notification No. 78/2020 – Central Tax dated 15th October, 2020 and Notification No. 06/2020–Integrated Tax dated 15th October, 2020, notified that a registered person has to mandatorily mention the HSN Digits of the HSN Code in tax invoices for the all products sold as follows:

Aggregate Turnover in the preceding Financial YearNumber of Digits of HSN Code
Up to Rs 5 crores4
more than Rs 5 crores6

The said notifications will come into effect from 1st April, 2021. Hence it is extremely crucial for taxpayers to remember to disclose the proper HSN codes in the tax invoices (as given above).

However, a registered person having aggregate turnover up to Rs 5 crores in the previous financial year may not mention the number of digits of HSN Code, in a tax invoice issued by him in respect of supplies made to unregistered persons

Given below are the mandatory fields a tax invoice under GST should have:

A tax invoice is generally issued to charge the tax and pass on the input tax credit. A GST Invoice must have the following mandatory fields-

  • Name, address and GSTIN of the supplier
  • A consecutive serial number, in one or multiple series, containing alphabets or numerals or special characters like hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year
  • Date of its issue
  • Name, address and GSTIN or UIN, if registered, of the recipient
  • Name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered and where the value of taxable supply is Rs 50,000 or more
  • HSN code of goods or Accounting Code of Services
  • Description of goods or services
  • Quantity in case of goods and unit or Unique Quantity Code there of
  • Total value of supply of goods or services or both
  • Taxable value of supply of goods or services or both, taking into account the discount or abatement, if any
  • Rate of tax (Central tax, State tax, Integrated tax, union territory tax or cess)
  • Amount of tax charged in respect of taxable goods or services (Central tax, State tax, Integrated tax, union territory tax or cess)
  • Place of supply along with the name of State, in case of a supply in the course of inter-State trade or commerce
  • Address of delivery where the same is different from the place of supply
  • Whether the tax is payable on reverse charge basis
  • Signature or digital signature of the supplier or his authorized representative

The purpose of HSN codes is to make GST systematic and globally accepted. HSN codes have eliminated the need to upload the detailed description of the goods in the tax invoices. This will save time and make filing easier since GST returns are automated.

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