HSN stands for Harmonized System of Nomenclature. In international trade, when it becomes difficult to classify a particular item in terms of local laws, an adaptation of the Harmonized System of Nomenclature (HSN) established for aiding in uniformity in Customs classification in international trade between member countries of World Customs Organization. It was drafted under the aegis of Customs Cooperation Council Nomenclature, Brussels. It was adopted for Customs purposes by India in 1975 and readapted (with some changes) for Central Excise in 1985 and now for purposes of GST in 2017.
HSN is an eight digit numeric code given to each item in the world to understand the classification of particular item while charging taxes on it.
Eight Digits of HSN Code comprised of followings:-
- First Two Digits : Chapter Number
- Next Two Digits : Heading
- Next Two Digits : Sub-Heading
- Last Two Digits : Item code
In Customs, fpr classification of goods, Eight digit HSN code is preferred. However, in GST, HSN Code at two digit level and four digit level is sufficient for classification.
In the GST rate schedule for goods, for classification of most of goods, four digit code is preferred.
In the GST laws, HSN plays an important role from charging TAX Rate to reporting at invoice level and at returns level.
In this article, we will discuss HSN’s role at Invoice Level.
Invoicing rules of CGST Rules 2017 provides that every Tax Invoice, Bill of Supply, Delivery Challan shall contain HSN Code for each item mentioned therein. As mentioned earlier, four digit code is generally used in GST.
However, some relaxations are provided on the basis of turnover of taxpayers. These relaxations are given only in respect of Tax Invoice and Bill of Supply.
CGST Notification No. 12/2017 dated 28/06/2017 provides that a registered person having annual turnover in the preceding financial year as per the Table below shall mention the digits of Harmonised System of Nomenclature (HSN) Codes, as specified in the Table, in a tax invoice issued by him under the said rules:
Turnover in preceding Financial Year
|HSN Code required|
Upto Rs 1 Crore 50 Lakh
More than Rs 1.50 Crore and upto Rs 5 Crore
Upto 2 digits
|More than Rs 5 Crore||
Upto 4 digits
Above said provisions are applicable till 31st March 2020.
As per above notification, there is an unconditional exemption for tax invoices issued to registered as well as unregistered persons.
New Rules for HSN Code w.e.f. 1st April 2021
W.e.f. 1st April 2021, new provisions has been notified vide CGST N/N 78/2020 dated 15th October 2020. As per these provisions, every registered person shall mention HSN code for every tax invoice issued for every supply as per following table:-
|Registered person having Aggregate Turnover in the preceding Financial Year||Number of Digits of Harmonised System of Nomenclature Code (HSN Code)|
|Up to rupees five crores*||upto 4 digits|
|more than rupees five crores||upto 6 digits|
*However, for registered persons having aggregate turnover upto Rs 5 crore in preceding financial year, there is a relaxation for HSN Code that he may not mention the HSN Code, in a tax invoice issued by him under the said rules in respect of supplies made to unregistered persons.
New provisions have following additional requirements are compared to previous prvisions:-
- HSN code to be given upto 6 digits (earlier, it was 4 digits) by registered persons having turnover exceeding Rs 5 crores.
- HSN Code to be given for every B2B transaction by every taxpayer, whereas, it was exempt for taxpayers having turnover upto Rs 1.5 Crore
- Exemption given only for B2C sales by taxpayers having turnover upto Rs 5 crore.