HSN stands for Harmonised System of Nomenclature code, it is an internationally standardized system of names and numbers to classify traded products. It came into effect in 1988 and has since been developed and maintained by the World Customs Organization (WCO) (formerly the Customs Co-operation Council), an independent intergovernmental organization based in Brussels, Belgium, with over 200 member countries.

It has about 5,000 commodity groups, each identified by a six-digit code, arranged in a legal and logical structure. It is supported by well-defined rules to achieve uniform classification. Over 98% of the merchandise in international trade is classified in terms of the HSN.

HSN Codes for each commodity is accepted by most of the countries. The HSN number remains same for almost all goods. However, HSN number used in some of the countries varies little, based on the nature of goods classified.

India was originally using 6-digit HSN codes to classify commodities for Customs and Central Excise. Later Customs and Central Excise added two more digits to make the codes more precise, resulting in an 8 digit classification.

The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 subheadings.

  • Each Section is divided into Chapters. Each Chapter is divided into Headings. Each Heading is divided into Sub Headings.
  • Section and Chapter titles describe broad categories of goods, while headings and subheadings describe products in detail.

The purpose of HSN codes is to make GST systematic and globally accepted.

HSN codes will remove the need to upload the detailed description of the goods. This will save time and make filing easier.

Rule 46 of Central Goods and Service Tax Rules, 2017 provides for matters concerning HSN Codes.

Prior to 1st April 2021, compulsory mentioning of HSN Codes in invoice was applicable as follows:

Aggregate Turnover No. of HSN No. to be stated in Invoice
Upto 1.5 Crores 0
1.5 to 5 Crores 2
More than 5 Crores 4

CBIC vide Notification No. 78/2020 – Central Tax dated 15th October, 2020 read with Notification No. 79/2020 – Central Tax dated 15th October, 2020 altered the criteria for mentioning of HSN codes in Invoice w.e.f. 1st April, 2021, as follows:

Aggregate Turnover No. of HSN No. to be stated in Invoice
Upto 5 Crores 4
More than 5 Crores 6

PENALTY U/S 125

Non-compliance of this rule may result in penalty upto Rs. 25,000

QUICK HIGHLIGHTS

1. Prior form 1st April, 2021 taxpayer having turnover upto 1.5 Crores was not required to provide HSN code in any kind of supply whether made to registered person or unregistered person but w.e.f. 1st April, 2021 taxpayer having turnover below 1.5 Crores is also required to state 4 digit HSN Code in supply made to registered person.

2. It is pertinent to highlight that requirement to specify 4 digit HSN code is mandatory only in case of supply made to registered person, in simpler words a taxpayer having turnover upto 5 Cores shall be required to state 4 digit HSN code only in supply made to registered person and not in supply made to unregistered person.

3. A taxpayer having turnover more than 5 crores shall mention 6 digit HSN codes irrespective of whether supply is made to registered person or unregistered person.

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

5. A taxpayer dealing in any supply as notified by the CBIC shall mention 8 digit HSN code [read Notification No. 90/2020 – Central Tax]

FAQ’s

Q.1 Shall person having registered under composition scheme or dealing in supply of exempted goods is also required to mention HSN codes?

Ans. Registered person having registered under composition scheme or dealing in supply of exempted goods shall also mention HSN code as per the above stated criteria. [Rule 49 read with Rule 46]

Q.2 Where HSN codes is required to mentioned?

Ans.  HSN codes are required to mentioned on invoice or Bill of supply as the case may be and in GSTR -1 return.

Q.3 What is Aggregate Turnover?

Ans.  Aggregate Turnover here means aggregate turnover as defined under Section 2(1)(6) of the Act, i.e. ― “aggregate turnover means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.”

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