India's tax system has been undergoing a transformation with the introduction of GST (Goods and Services Tax). It is a unified tax system that has replaced various indirect taxes. One of the key features of GST is the mandatory mentioning of HSN (Harmonized System of Nomenclature) codes in the GST returns. The HSN code is a globally accepted system of product classification that makes it easy to identify the goods and services for tax purposes.
Recently, the Central Board of Indirect Taxes and Customs (CBIC) issued an advisory stating that businesses with a turnover above Rs. 5 Crore will need to mention the six-digit HSN code for every product in their GSTR-1 (Goods and Services Tax Return-1) with effect from 1st April 2021. This advisory is aimed at improving the accuracy of the GST returns and reducing the potential for tax evasion.
Here's everything you need to know about the advisory on mandatory mentioning of HSN codes in GSTR-1:
GSTR-1 is a monthly or quarterly return that needs to be filed by every registered taxpayer. It contains details of all sales made during the period under consideration. The details include the description of the goods or services supplied, the quantity, the value, and the tax charged on the supply.
The Harmonized System of Nomenclature (HSN) is an internationally accepted system of product classification. It is used to classify goods and services for taxation purposes. HSN codes are used to identify the goods and services being supplied and to determine the tax rates applicable.
The mandatory mentioning of HSN codes in GSTR-1 is aimed at improving the accuracy of the GST returns. It will make it easier for the tax authorities to verify the details of the goods and services being supplied and to determine the correct tax liability. It will also reduce the potential for tax evasion as the HSN codes provide greater transparency in the supply chain.
As per the latest advisory issued by the CBIC, businesses with a turnover above Rs. 5 Crore will need to mention the six-digit HSN code for every product in their GSTR-1 with effect from 1st April 2021. However, businesses with a turnover below Rs. 5 Crore have been given an option to mention HSN codes for their supplies in their GSTR-1.
The HSN codes need to be mentioned in the GSTR-1 in the following format:
ColumnDescriptionHSN CodeThe six-digit HSN code for the productDescriptionA brief description of the productQuantityThe quantity of the product suppliedUnitThe unit of measurement for the productValueThe total value of the product suppliedTaxable ValueThe value of the product on which tax is chargedRateThe tax rate applicable to the productTax AmountThe amount of tax charged on the product
The mandatory mentioning of HSN codes in GSTR-1 has various benefits for businesses:
1. Helps in the accurate classification of goods and services
2. Improves the accuracy of the GST returns
3. Reduces the potential for tax evasion
4. Provides greater transparency in the supply chain
5. Helps in the identification of fraudulent activities
The mandatory mentioning of HSN codes in GSTR-1 is a step towards achieving greater transparency in the GST system. While it may seem like an additional burden for businesses, it will eventually lead to a more efficient and transparent tax system. Businesses need to ensure that they comply with the latest advisory issued by the CBIC and mention the HSN codes for every product in their GSTR-1. This will not only help them avoid penalties but also make their tax compliance process smoother.
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