Understanding the HSN Code Requirements for GST Tax Invoices in FY2021-22

With the implementation of the Goods and Services Tax (GST) in India, the classification and documentation of goods have become more stringent. One key aspect is the HSN (Harmonized System of Nomenclature) code, which is essential for accurate tax invoicing and compliance. This article delves into the specific requirements for the number of digits in the HSN code to be mentioned on tax invoices, based on the aggregate turnover in the preceding financial year.

1. Harmonized System of Nomenclature (HSN) and Goods and Services Tax (GST)

The HSN code is a unique identification number assigned to goods, facilitating their classification, documentation, and taxation under the GST regime. It is an 8-digit number in India. The SAC (Service Accounting Code) code, on the other hand, is a 6-digit number used for the classification of services. These codes play a crucial role in determining the appropriate GST rate applicable to a product or service and are mandatory for GST registration and returns.

2. Turnover Criteria and HSN Code Digits

Beyond just the HSN code itself, the number of digits required to be mentioned in the HSN code on a GST tax invoice is determined by the dealer's aggregate turnover in the preceding financial year. The tax authority has specified the following conditions:

Aggregate Turnover le; Rs. 1.5 crores: No HSN code is required to be mentioned in the tax invoice. This exemption applies to all types of entities.

Aggregate Turnover Rs. 1.5 crores to Rs. 5 crores: Last 2 digits of the HSN code are required to be mentioned. This applies to goods.

Aggregate Turnover Rs. 5 crores: Last 4 digits of the HSN code are required to be mentioned. This applies to both goods and services.

Import/Export: The full 8-digit HSN code is mandatory for imported or exported goods.

Services: All 6 digits of the SAC code are required for services.

3. Composition Scheme Dealers

Dealers opting for the Composition Scheme are exempt from using HSN codes. This scheme is designed for small businesses with a turnover of up to Rs. 1.5 crores and, therefore, no HSN code is required to be mentioned in their invoices.

4. Implications of HSN Code Accuracy

Accurate HSN coding is not just a compliance issue; it has several implications, including:

The GST rate, which affects the amount of tax to be paid, is determined based on the HSN/SAC code.

The HSN/SAC code must be present in the GST invoice as well as in the GST return.

Goods and services are identifiable on a global market basis through HSN/SAC codes.

5. Compliance Tips

To ensure compliance with GST requirements, dealers should:

Understand the turnover criteria and applicable HSN code digit requirements.

Use the correct HSN code for each transaction, even if it means increasing the number of digits mentioned.

Keep records of all relevant transactions and keep the correct HSN code for statistical and regulatory purposes.

By adhering to these guidelines, businesses can minimize errors and ensure smooth compliance with GST regulations, ultimately leading to hassle-free taxation and operations.

Conclusion

Accurate and proper use of HSN codes and SAC codes is vital for GST compliance. Understanding the turnover-based criteria for HSN code digits and following the guidelines mentioned in this article will help businesses maintain compliance and avoid potential penalties.

Keyword Highlights:

HSN code, GST tax invoice, turnover criteria