July 13, 2021

What is HSN ?

HSN means Harmonized System Nomenclature .It is an internationally adopted system for commodity description and product nomenclature system developed by the World Customs Organization (WCO). 

HSN Code mandatory from 𝟏𝐬𝐭 April, 𝟐𝟎𝟐𝟏

From 1st April, 2021, The government has made HSN for taxpayers, based on the following criteria:

1. Aggregate Turnover is up to ₹5 crores in the preceding Financial Year 

•  HSN / SAC code of 4 digits is mandatory for all the B2B tax invoices,
•  Optional for B2C tax invoices on the supplies of Goods and Services.

1. Aggregate Turnover is more than ₹5 crores in the preceding Financial Year 

•  HSN / SAC code of 6 digits is mandatory for both B2B and B2C tax invoices on the supplies of Goods and Services.

 

Aggregate Turnover in preceding financial year	Up to ₹ 5 Crores	More Than ₹ 5 crores
No. of HSN digits required	4 digits	6 digits
Type of supply	B2B – Mandatory B2C- Optional	B2B – Mandatory B2C – Mandatory

𝐂𝐨𝐧𝐬𝐞𝐪𝐮𝐞𝐧𝐜𝐞𝐬 𝐨𝐟 𝐍𝐨𝐧 𝐦𝐞𝐧𝐭𝐢𝐨𝐧𝐢𝐧𝐠 𝐨𝐟 𝐇𝐒𝐍 𝐨𝐫 𝐦𝐞𝐧𝐭𝐢𝐨𝐧𝐢𝐧𝐠 𝐢𝐧𝐜𝐨𝐫𝐫𝐞𝐜𝐭 𝐇𝐒𝐍 𝐜𝐨𝐝𝐞.

1. I𝐧𝐯𝐚𝐥𝐢𝐝 𝐈𝐧𝐯𝐨𝐢𝐜𝐞: As per GST laws, there is no specific format prescribed for invoice, however, there is information which is mandatorily required to be mentioned on a valid invoice. HSN is also one of them. In case, where the person who is liable to mention HSN code as per the above mentioned criteria fails to mention HSN on any invoice, such invoice will be treated as invalid invoice.
2. No 𝐢𝐧𝐩𝐮𝐭 𝐭𝐚𝐱 𝐜𝐫𝐞𝐝𝐢𝐭: In order to claim input tax credit, the buyer needs to obtain a valid invoice with correct HSN code. So if you are furnishing incorrect HSN Code, the buyer will not be able to claim input tax credit.
3. 𝐏𝐞𝐧𝐚𝐥𝐭𝐲 𝐟𝐨𝐫 𝐢𝐧𝐜𝐨𝐫𝐫𝐞𝐜𝐭 𝐢𝐧𝐯𝐨𝐢𝐜𝐢𝐧𝐠: As per GST laws, in case of incorrect invoicing, a penalty of Rs. 25,000 can be levied under section 125 of CGST Act.