The ministry of finance has announced that business with turnover of Rs 5 crore and above will have to furnish six-digit HSN or tariff code on the invoices issued for supplies of taxable goods and services from 1 April. Those with turnover of upto 5 crore in the preceding financial year would also be required to furnish four-digit HSN code on B2B invoices.
What is HSN code?
HSN stands for Harmonized System of Nomenclature code. It is mandatory for both B2B and B2C tax invoices on the supplies of Goods and Services. This was introduced in 1988 by the World Customs Organization (WCO). This was introduced for a systematic classification of goods both national and international. This is a 6-digit code that classifies various products. India has been using HSN codes since 1986 to classify commodities for Customs and Central Excise. HSN codes apply to Customs and GST. The codes prescribed in the Customs tariff are used for the GST purposes too. HSN is used all over the world. There are different HSN codes for various commodities. HSN codes remove the need to upload details about the goods which makes filing of GST returns easier.
Who needs it?
Manufacturers, importers and exporters have been using HSN codes for a long time now. Manufacturers were furnishing these codes even in the pre-GST regime. Importers and exporters have been furnishing these codes in their import, export documents. Traders would mostly be using HSN codes furnished in the invoices issued to them by the manufacturer or importer suppliers.
Understanding the Code
The HSN code contains 21 sections. These are divided into 99 chapters which are divided into 1244 sections. This system helps in making GST simpler and globally accepted. HSN codes for goods at 6 digits are universally common. Common HSN codes apply to Customs and GST. Codes prescribed in the Customs tariff are used for the GST purposes. In Customs Tariff, HS code is prescribed as heading (4 digits HS), sub-heading (6 digits HS) and tariff items (8 digits). These documents are accessible on the CBIC website.
Where are the codes used?
Various services are also classified uniformly for recognition, measurement and taxation. Codes for services are called Services Accounting Code or SAC. HSN code is required for anything from animal products, mineral products, plastic articles to footwear, arms and ammunition and machinery.
What is SAC HSN code?
SAC code stands for Services Accounting. This is issued by Central Board of Indirect Taxes and Customs (CBIC) to classify each service under GST. Each service has a unique SAC. These SAC codes can be used in invoices created by you for the services you delivered. HSN and SAC codes are used to classify goods and services under GST regime.
HSN/SAC code shall be mentioned in Tax invoice as well as furnished in Table 12 of form GSTR-1. The taxpayers who have turnover below the limit of Rs 1.5 Crore will have to mention the description of goods/services in place of code. Whereas the description is optional for taxpayers who are required to furnish HSN/SAC codes on the basis of aggregate turnover as below:
- Less than Rs. 1.5 crore– HSN /SAC code is not mandatory.
- Rs. 1.5 crore to Rs. 5 crore– 2 digit HSN code is mandatory.
- Above Rs. 5 crore– 4 digit HSN code is mandatory.
- For export turnover– 8 digit HSN code is mandatory.
HSN classification is widely used for taxation purposes by helping to identify the rate of tax applicable to a specific product in a country that is under review. It can also be used in calculations that involve claiming benefits. If you have any doubt, you can contact companysuggestion.