On 15th October, 2020, CBIC brought a notification which makes changes in the requirements of mentioning HSN Code in the tax invoices. This change has been brought by CBIC vide its Notification No. 78/2020- Central Tax dated 15th October, 2020. This notification has increased accounting exercise of the GST taxpayers to some extent. In this article, we will discuss about the meaning of HSN Code and how it affects GST registered taxpayers. We will also discuss the existing provisions of mentioning HSN Code in the tax invoice and also the amendment brought by the CBIC.
What is HSN
HSN stands for "Harmonized System of Nomenclature" which was developed by the World Customs Organization (WCO). It is a six digit uniform code that classifies 5000+ products and is accepted worldwide. The vision and object behind bringing HSN system was the uniform classification of goods all over the world in a systematic manner. HSN classification is used for taxation purposes in identifying the rate of tax applicable to a product in a country. To add further, HSN system is used for export & import activities. Thus, it helps in determining the quantity of products imported or exported through a country.
What is the importance of HSN
The primary purpose of the HSN system is the systematic classification of goods and to regulate international trade system efficiently. HSN is accepted worldwide due to number of inherent benefits as below:-
(a) Collection of international trade statistics
(b) Provision of a rational basis for Customs tariffs
(c) Uniform classification
Is HSN compulsory under GST
HSN system is not new for India. India has already been using HSN system in the Central Excise and Customs regime. When GST law was introduced in India, it was made compulsory to mention 6 digits HSN in tax invoice. But later to avoid hardships for small taxpayers, modifications were made by CBIC in the law. CBIC brought Notification No. 12/2017 - Central Tax dated 28th June, 2017 which relaxed HSN requirement for small taxpayers with annual turnover upto Rs. 1.50 crores in the previous financial year. This notification provided as below:-
| Sr. No. | Annual Turnover in the previous financial year | No. of digits of HSN to be mentioned in tax invoice |
| 1 | Up to Rs. 1.50 crores | Nil |
| 2 | More than Rs. 1.50 crores but upto Rs. 5 crores | 2 |
| 3 | More than Rs. 5 crores | 4 |
Therefore, mentioning HSN code in the tax invoice was compulsory under GST for taxpayers having an annual turnover more than Rs. 1.50 crores.
Changes in HSN requirement in the tax invoices
CBIC has brought Notification No. 78/2020- Central Tax dated 15th October, 2020 making changes in the HSN requirements in the tax invoices. This notification has made compulsory for every taxpayer (small/large) to mention HSN code in the tax invoices with effect from 01st April, 2021. This notification prescribes HSN requirements as below:-
| Sr. No. | Annual Turnover in the previous financial year | No. of digits of HSN to be mentioned in tax invoice |
| 1 | Up to Rs. 5 crores | 4 |
| 2 | More than Rs. 5 crores | 6 |
However, if a registered taxpayer is having aggregate turnover of up to Rs. 5 crores in the previous financial year and he makes supplies to an unregistered person, he may not mention the number of digits of HSN code in the tax invoices. Please note that this relaxation is available only for those taxpayers who are having turnover up to Rs. 5 crores and that only in respect of sales made to unregistered persons.
In light of this notification, every GST registered taxpayer is expected to note this change and make necessary modifications in their invoicing/ billing system with effect from 01st April, 2021.
