The Harmonised System of Nomenclature (HSN) plays a crucial role in our country’s Tax Regime. Our country has been a member of the World Customs Organization (WCO) since 1971. It 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.
As per Notification No. 12/2017-Central Tax, dated June 28, 2017, and amended by Notification No. 78/2020-Central Tax, dated October 15, 2020, taxpayers are required to declare specific digits of HSN codes on tax invoices, depending on their aggregate turnover. In this blog let's dive deep into when to report 2, 4 and 6 digit HSN codes according to the GST Regime.
What is HSN Code ?
The HSN code is a numeric identification system used to classify goods and services for taxation purposes. The HSN structure contains 21 sections, 99 Chapters, about 1,244 headings, and 5,224 subheadings. Each Section is divided into Chapters. Each Chapter is again divided into Headings. Where Each Heading is divided into subheadings.
Here, Section and Chapter titles describe broad categories of goods, while headings and subheadings describe products in detail.
Example
Ceramic products with Of A Water Absorption Coefficient By Weight Exceeding 10% with a GST of 18%.
HSN Code: 69072300
The Significance of HSN Reporting in GST
The HSN code system simplifies the taxation process by providing a common language for classifying goods and services. It enables a uniform approach to taxation, enhances trade facilitation, and improves compliance. Under the GST regime, the HSN code to be reported on invoices depends on the taxpayer's aggregate turnover.
HSN Reporting Based on Aggregate Turnover
Turnover up to INR 5 crores:
Taxpayers with an aggregate turnover up to INR 5 crores are required to report 4-digit HSN codes on their invoices.
Turnover more than INR 5 crores:
Taxpayers with an aggregate turnover exceeding INR 5 crores are required to report 6-digit HSN codes on their invoices.
Mandatory HSN codes reporting from October 1st
In a recent update, the GST E-way bill system issued a reminder to GST taxpayers regarding the incorporation of 6-digit or 4-digit HSN codes, which will soon become mandatory. This mandate stems from Notification No. 78/2020 dated October 15, 2020. Here's the breakdown:
1. taxpayers with Aggregate Annual turnover (AATO) exceeding Rs 5 Crore must use at least 6-digit HSN codes in e-Invoices and e-Waybills.
2. Other taxpayers, not meeting the AATO threshold, must use at least 4-digit HSN codes in e-Invoices and e-Way Bills.
The enforcement of this mandate is set to take effect on October 1, 2023 for both e-Waybills and e-Invoices.
Validity of HSN Codes
Taxpayers must ensure that the HSN codes they report are valid and available in the system. The HSN codes should correspond to the goods and services being supplied. Specifically:
1. 6-digit HSN codes must be valid and available in the HSN/Customs Tariff, along with the corresponding description of goods.
2. Truncated 6-digit HSN codes, derived from 8-digit codes, are not permissible if they are not available in the tariff at the 6-digit level and lack a corresponding description of goods.
The Minimum Digits to be Reported
The notifications (No. 12/2017 and 78/2020 - Central Tax) specify the minimum number of digits of HSN to be mentioned on the invoice, based on the taxpayer's turnover. However, taxpayers have the flexibility to include HSN codes with more digits than the minimum requirement, as long as they are valid.
Examples of HSN Reporting
If 6-digit HSN codes are specified to be reported on the invoice:
Taxpayers can mention valid HSN codes available in the tariff, both at 6-digits and 8-digits.
If 4-digit HSN codes are specified to be reported on the invoice:
Taxpayers can mention valid HSN codes available in the tariff at 4-digit, 6-digit, and 8-digit levels.
Reporting Invalid HSN Codes
Taxpayers should not report 4/6-digit HSN codes that are not available in the tariff and lack a corresponding description of goods. Such codes are considered invalid and will not be accepted in the system.
Chapter Wise distribution using HSN Codes
Section I
Animals and Animal products
Chapter
Commodities
Chapter 1
Animals
Chapter 2
Meat and edible offal
Chapter 3
Fish, molluscs, crustaceans, and other aquatic invertebrates
Chapter 4
Dairy produce, birds' eggs, honey and other edible products of animal origin that are not specified elsewhere
Chapter 5
Other products of animal origin that are not specified elsewhere
Section II
Vegetables and Vegetable Products
Chapter
Commodities
Chapter 6
Live trees and plants, bulbs, roots, etc., cut flowers and ornamental foliage
Chapter 7
Edible vegetables, certain roots and tubers
Chapter 8
Edible fruit and nuts, the peel of citrus fruits or melons
Chapter 9
Tea, coffee, mate and spices
Chapter 10
Cereals
Chapter 11
Milling products, malt, wheat gluten, starches, and inulin
Chapter 12
Oil seeds and oleaginous fruits, grains, straw and fodder, seeds and fruit, and industrial or medicinal plants
Chapter 13
Lac, gum, resin, and other saps and extracts
Chapter 14
Vegetable plaiting materials, and vegetable products that are not specified elsewhere
Section III
Animal or Vegetable Oils, Their Cleavage Products, Waxes, and Prepared Edible Fats
Chapter
Commodities
Chapter 15
Animal or vegetable oils, their cleavage products, waxes, and prepared edible fats
Section IV
Prepared Food, Beverages, Spirits, Tobacco and Tobacco Substitutes
Chapter
Commodities
Chapter 16
Preparation of meat, fish or crustaceans, molluscs, or any other aquatic invertebrates
Chapter 17
Sugar and sugar confectionery
Chapter 18x
Cocoa and cocoa preparations
Chapter 19
Preparations of cereals, starch, flour, milk, and pastry products
Chapter 20
Preparation of vegetables, fruits, nuts, or plant parts
Chapter 21
Miscellaneous edible preparations
Chapter 22
Beverages, vinegar, and spirits
Chapter 23
Residue and food waste, prepared animal fodder
Chapter 24
Tobacco and tobacco substitutes that are manufactured
Section V
Minerals
Chapter
Commodities
Chapter 25
Salt, earths and stones, sulphur, plastering material, lime, and cement
Chapter 26
Ores, slag, and ash
Chapter 27
Mineral fuel, mineral oils and products of their distillation, mineral waxes, and bituminous substances
Section VI
Chemical Products or of Allied Industries
Chapter
Commodities
Chapter 28
Inorganic chemicals, organic or inorganic compounds of precious metals, rare-earth metals, radioactive elements, or isotopes
Chapter 29
Organic chemicals
Chapter 30
Pharmaceutical products
Chapter 31
Fertilisers
Chapter 32
Tanning or dyeing extracts, tannins and their derivatives, dyes, pigments, and other colouring matter, varnishes and paints, inks, putty and other mastics
Chapter 33
Essential oils and resinoids, cosmetic or toilet preparations, perfumery
Chapter 34
Soap, washing preparations, organic surface-active agents, lubricating preparations, prepared waxes, artificial waxes, polishing or scouring preparations, candles and similar items, modelling pastes, dental preparations and dental waxes with a basis of plaster
Chapter 35
Albuminoidal substances, glues, enzymes, and modified starches
Chapter 36
Explosives, pyrotechnic products, pyrophoric alloys, certain combustible preparations, and matches
Chapter 37
Photographic or cinematographic goods
Chapter 38
Miscellaneous chemical products
Section VII
Plastics, Rubber, and Articles Thereof
Chapter
Commodities
Chapter 39
Plastics and plastic articles
Chapter 40
Rubber and rubber articles
Section VIII
Raw Hides and Skins, Furskins and Articles Thereof, Leather, and Related Goods
Chapter
Commodities
Chapter 41
Raw hides and skins (other than furskins) and leather
Chapter 42
Articles made of leather, travel goods, handbags and similar containers, saddlery and harnesses, articles made of animal gut (other than silkworm gut)
Chapter 43
Furskins and artificial fur and articles thereof
Section IX
Wood and Wooden Articles, Wood Charcoal, Cork and Articles of Cork, Basket Ware and Wickerwork, Manufacturers of Straw, Esparto or Other Plaiting Material
Chapter
Commodities
Chapter 44
Wood and wooden articles, wood charcoal
Chapter 45
Cork and articles of cork
Chapter 46
Manufactures of straw, esparto or other plaiting materials, basket ware and wickerwork
Section X
Pulp of Wood or Other Fibrous Cellulosic Material, Recovered Paper or Paperboard (Waste and Scrap), Paper and Paperboard, and Articles Thereof
Chapter
Commodities
Chapter 47
Pulp of wood or other fibrous cellulosic material, recovered paper or paperboard (waste and scrap)
Chapter 48
Paper and paperboard, articles made of paper pulp, or articles made of paper or paperboard.
Chapter 49
Printed books, pictures, newspapers, and other products of the printing industry, typescripts, manuscripts, and plans
Section XI
Textiles and Textile Articles
Chapter
Commodities
Chapter 50
Silk
Chapter 51
Wool, fine or coarse animal hair, horse hair yarn and other woven fabrics
Chapter 52
Cotton
Chapter 53
Other vegetable textile fibres, paper yarn and woven fabrics made of paper yarn
Chapter 54
Man-made filaments
Chapter 55
Man-made staple fibres
Chapter 56
Wadding, felt and nonwovens, twine, cordage, special yarns, ropes, and cables and articles thereof
Chapter 57
Carpets and textile floor coverings
Chapter 58
Special woven fabrics, lace tapestries, tufted textile fabrics, trimmings, and embroidery
Chapter 59
Impregnated, covered, coated, or laminated textile fabrics, textile articles made for industrial use.
Chapter 60
Knitted or crocheted fabrics
Chapter 61
Articles of apparel and clothing accessories that are knitted or crocheted
Chapter 62
Articles of apparel and clothing accessories that are not knitted or crocheted
Chapter 63
Other made up textile articles, sets, worn clothing and textile articles, and rags
Section XII
Footwear, Headgear, Umbrellas, Walking Sticks and Seat Sticks, Whips, Riding Crops and Parts Thereof, Artificial Flowers, Articles of Human Hair, Prepared Feathers and Articles Made Thereof
Chapter
Commodities
Chapter 64
Footwear, gaiters, etc., and the parts of such articles
Chapter 65
Headgear and parts thereof
Chapter 66
Umbrellas and sun umbrellas, walking sticks, seat sticks, riding crops and parts thereof, and whips
Chapter 67
Prepared feathers and down and articles made thereof, artificial flowers, and articles made of human hair
Section XIII
Articles Made of Stone, Plaster, Asbestos, Cement, Mica, or Other Similar Materials, Glass and Glassware, Ceramic Products
Chapter
Commodities
Chapter 68
Articles made of stone, plaster, cement, asbestos, mica or similar materials
Chapter 69
Ceramic products
Chapter 70
Glass and glassware
Section XIV
Natural or Cultured Pearls, Precious Metals Clad With Precious Metal and Articles Thereof, Precious or Semi-Precious Stones, Coins, and imitation jewelry
Chapter
Commodities
Chapter 71
Natural or cultured pearls, precious metals, metals that are clad with precious metal and articles thereof, precious or semi-precious stones, imitation jewellery, coins
Section XV
Base Metal and Articles Made of Base Metal
Chapter
Commodities
Chapter 72
Iron and steel
Chapter 73
Articles made of iron or steel
Chapter 74
Copper and articles thereof
Chapter 75
Nickel and articles thereof
Chapter 76
Aluminium and articles thereof
Chapter 77
(Reserved for possible future use)
Chapter 78
Lead and articles thereof
Chapter 79
Zinc and articles thereof
Chapter 80
Tin and articles thereof
Chapter 81
Other base metals, cermets, and articles thereof
Chapter 82
Tools, implements, spoons and forks, cutlery, of base metal, and parts thereof
Chapter 83
Miscellaneous articles made of base metal
Section XVI
Machinery and Mechanical Appliances, Electrical Equipment and Parts Thereof, Sound Reproducers and Recorders, Television Image and Sound Reproducers and Recorders, and Parts and Accessories of Such Articles
Chapter
Commodities
Chapter 84
Nuclear reactors, machinery and mechanical appliances, boilers, and parts thereof
Chapter 85
Electrical machinery and equipment and parts thereof, sound reproducers and recorders, television image and sound reproducers and recorders, and parts and accessories of such articles
Section XVII
Vehicles, Aircraft, Vessels, and Associated Transport Equipment
Chapter
Commodities
Chapter 86
Tramway or railway locomotives, tramway or railway track fixtures and fittings and parts thereof, rolling stock and parts thereof, mechanical (including electro-mechanical) traffic signalling equipment of all kinds
Chapter 87
Vehicles other than tramway or railway rolling stock, and parts and accessories thereof
Chapter 88
Aircraft, spacecrafts, and parts thereof
Chapter 89
Ships, boats and floating structures
Section XVIII
Optical, Photographic, Cinematographic, Checking, Measuring, Precision, Medical or Surgical Instruments and Apparatus, Musical Instruments, Clocks and Watches, Parts and Accessories Thereof
Chapter
Commodities
chapter 90
Optical, photographic, cinematographic, checking, measuring, precision, medical or surgical instruments and apparatus, parts and accessories thereof
Chapter 91
Clocks and watches and parts thereof
Chapter 92
Musical instruments, and parts and accessories of such articles
Section XIX
Arms and Ammunition, Parts and Accessories Thereof
Chapter
Commodities
Chapter 93
Arms and ammunition, parts and accessories thereof
Section XX
Miscellaneous Manufactured Articles
Chapter
Commodities
Chapter 94
Furniture, mattresses, mattress supports, bedding, cushions and similar stuffed furnishing, lamps and lighting fittings, which are not elsewhere specified or included, illuminated signs and name-plates and the like, prefabricated buildings
Chapter 95
Toys, games and sports requisites, parts and accessories thereof
Chapter 96
Miscellaneous manufactured articles
Section XXI
Works of Art, Collectors’ Pieces and Antiques
Chapter
Commodities
Chapter 97
Works of art, collectors' pieces and antiques
Chapter 98
Project imports, laboratory chemicals, personal imports by air or post, passenger's baggage, ship stores
Chapter 99
Services
Conclusion
The proper reporting of HSN codes on tax invoices is crucial for complying with the GST regulations. Taxpayers must accurately determine their aggregate turnover to determine the required number of digits for HSN reporting. Additionally, they should ensure that the HSN codes reported are valid, available in the system, and correctly correspond to the goods and services being supplied. For any cases where valid HSN codes are not accepted on the GST Portal, e-invoice Portal, or e-way Bill portal, taxpayers can raise a ticket on the GST Self-Service Portal and report the issue.
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