Introduction

HSN stands for Harmonized System Nomenclature. It was introduced for the systematic classification of goods all over the world. Generally, HSN Code is a six-digit that differentiate more than 5000 products worldwide. The concept was implemented by World Customs Organization (WCO) in the year 1988. HSN Code also brings uniform and logical differentiation of goods and smoothen international business.

Legal Provisions

The HSN Code is explained under first proviso of Rule 46(g) of the CGST Rules, 2017. It further states that the Tax invoice shall have HSN Code for goods and services. The mentioning of the number of digits in the tax invoice shall be notified by the governing authority and if any exemption available for the same to the taxable person will also be notified in above-mentioned manner. In October 2020, vide notification no. 78/2020, the criteria of HSN code was amended that will be applicable from 1st April 2021.

HSN Code provisions in past

Previously, the highlighting of HSN code in tax invoice was totally dependent on the annual turnover of the registered person in the previous financial year.

This can be explained in three different cases:

Case 1: In the case where the taxable person is having annual turnover up to Rs. 1.5 Crores in the previous financial year- the number of digits of HSN code to be mentioned in the GST invoice shall be NIL.

Case 2: In the second case, where the taxable person is having annual turnover from Rs. 1.5 crores to 5 crore   in the previous financial year- the number of digits mentioned in the GST invoice shall be of 2 digits.

Case 3: In the third case, where the taxable person having an annual turnover of more than Rs. 5 crores in the previous financial year- the number of digits of the HSN Code to be mentioned in the GST invoice shall be 4 digits.

Recent amendment by CBIC for HSN Code

The Central Board of Indirect Taxes and Customs (CBIC) in a notification no. 78/2020 revised the previous provisions for HSN Code. The new provisions shall be effective from 1st April 2021 and explained hereunder:

Case 1: A taxable person having aggregate turnover up to Rs. 5 Crores in the previous financial year will have 4 digits HSN code on the GST Invoice.

Case 2: A taxable person having aggregate turnover of more than 5 crores in the previous financial year shall have 6 digits HSN code on the GST invoice.

Therefore, the above-mentioned conditions shall be applicable to taxable persons from 1st April 2021 by complying with the above two conditions of the HSN coding mechanism.