HSN System In India

 

Harmonized System of Nomenclature

HSN is short for Harmonized System of Nomenclature. It's an international standardized nomenclature and numbering system employed to classify traded goods.

👉What is HSN?

•Developed by: World Customs Organization (WCO)

•Purpose: To systematically classify all goods in international trade.

•Structure: 6-digit uniform code (additional digits can be added by countries for further classification)

________________________________________

👉How HSN Code Works:

Let's dissect it with an example:

HSN Code: 1006.30.10

Code Description

1006 Chapter 10 – Cereals → Rice.30 Semi-milled or wholly milled rice

.10 Basmati rice

• First 2 digits: Chapter (broad category – e.g., cereals, machinery, etc.)

• Next 2 digits: Heading (more specific – e.g., rice in cereals)

• Next 2 digits: Sub-heading (even more detail – e.g., basmati rice)

In India:

• 4-digit HSN codes for goods up to ₹1.5 crore turnover.

• 6-digit for ₹1.5–5 crore turnover.

• 8-digit for over ₹5 crore and for exports/imports.

________________________________________

👉 Where Is It Used?

• GST (Goods and Services Tax) filing

• Forms under customs documents

• Export/import procedures

• Invoicing

________________________________________

👉Why Is HSN Important?

• Reduces complexity in international trade.

• Provides correct tax classification.

• Facilitates uniform product codes between countries.

• Reduces disputes or misclassification.

Following are the key points regarding HSN (Harmonized System of Nomenclature) in GST (Goods and Services Tax) in India:

________________________________________

👉Key Points regarding HSN in GST

1. Use of HSN Codes

• HSN codes are mandatory on tax invoices, e-way bills, and GST returns.

• Depends on taxpayer's turnover.

2. HSN Code Digits Based on Turnover

Aggregate Turnover (Previous FY) 

Number of HSN Digits Required

Up to ₹5 crore (B2B)- 4 digits

Above ₹5 crore- 6 digits (mandatory)

Exports/Imports- 8 digits (according to customs)

👉B2C invoices (turnover < ₹5 crore) — HSN not compulsory, but advisable.

________________________________________

3. Purpose in GST

• Assists in classifying goods for GST rates.

• Assures uniformity in tax rates and reporting.

• Aids in avoidance of classification disputes.

________________________________________

4. GST Rate Depends on HSN

• Each HSN code has a corresponding GST rate slab (e.g., 0%, 5%, 12%, 18%, or 28%).

• Incorrect HSN = Incorrect GST rate = Penalties or Notices from GST department.

________________________________________

5. Mention on Documents

• HSN has to be mentioned on tax invoices, bills of supply, e-way bills, and GSTR-1 returns.

________________________________________

6. Auto-populated in GSTR Forms

• In GSTR-1, outward supplies are required HSN-wise summary.

• From FY 2021–22, B2B supplies became stricter for HSN reporting.

________________________________________

7. Wrong HSN Penalties

• Mis-classification or mis-reporting can invoke penalties and tax liability.

________________________________________

8. HSN Lookup Tools

• Found on:

o CBIC GST Portal

o GSTN Portal

o Trade classification systems such as ICEGATE, etc.

________________________________________

9. Not Applicable to Services

• Services employ the same system known as SAC (Service Accounting Code), not HSN.

________________________________________

10. Exports/Imports Have to Adhere to 8-digit HSN

• For complying with global trade as well as customs formalities, 8-digit codes must be followed.

New changes May 2025

Here are the updated changes regarding HSN under GST, as brought about by the CBIC/GSTN in Phase III (from the May 2025 return period, for returns submitted from June 2025 onwards):

Split into B2B & B2C HSN summary (Table 12)

•GSTR 1/GSTR 1A Table 12 is bifurcated into distinct B2B and B2C.

•Reporting in the B2B tab is compulsory if there is any B2B supply.

• For B2C, entry is voluntary—but keeping B2B blank with B2B is blocked.

_______________________________________

4. Auto-validation between tables

• Portal now does consistency checks between values in Table 12 and other tables (such as 4A/6B/9B, etc.) for both B2B and B2C.

________________________________________

5. New user-friendly features

• "Download HSN Codes List" button for easy viewing of latest HSN/SAC codes.

• "Simplified search through "Product Name as in My Master"—choose your internal product name and auto-fill HSN, UQC, quantity, description 

______________________________________

6. Table 13 (Document Summary) becomes obligatory

• Filing Table 13 reporting of all document types (invoices, credit/debit notes, revised invoices) from May 2025 becomes compulsory.

• GSTR 1/GSTR 1A cannot be filed if Table 13 is not properly filled taxtmi.com+15yourcommercialattorney.in+15caindelhiindia.com+15.

______________________________________

👉Summary: What CBIC Has Imposed

• Drop down-only HSN entry with auto-description.

• Turnover-based requirement: 4 digit / 6 digit.

• B2B/ B2C segregation in Table 12; B2B compulsory.

• Auto-validation warnings for all tables (soon more stringent).

• Downloadable list of HSN and enhanced product mapping.

• Compulsory Table 13, non-filing of blocks gets filing blocked.

________________________________________

👉 Taxpayer Action Items

1.Upgrade billing/GST software to accommodate drop down-only HSN selection and Table 12 split.

2.Staff training to identify B2B/ B2C entries correctly.

3.Reconcile values between tables to prevent validation flags.

4.Use download/search tools to verify HSN accuracy.

5.Fill Table 13 to avoid reject if ignored by returns now.

6. Be vigilant—Phase IV can make warnings into errors.

Author

Shabnam