GST e-Invoice Mandate: Including 6-Digit HSN for Wholesale Tax

Simran Gupta |Updated on: June 14, 2024

Imagine you own a wholesale business owner with an Aggregate Annual Turnover (AATO) exceeding Rs. 5 Crores. Previously, when generating e-Invoices for your transactions, you only needed to include basic details such as the product name, quantity, price, and tax rate.

However, with the latest GST e-invoice system mandate announced on December 04, 2023, a significant change has been introduced. It states, “Atleast 6-digit HSN will be mandatory in e-lnvoices, for taxpayers whose AATO is 5Cr and above, from 15th of December 2023.” Similarly, businesses with turnover less than or equal to Rs. 5 crore must use 4-digit HSN code for all the B2B invoices. However, this reporting is optional for B2C invoices.

In simpler terms, you are now required to incorporate a minimum of 6 digits of the Harmonized System of Nomenclature (HSN) code in your e-Invoices starting from December 15, 2023.

For example, let's say you sell electronic gadgets such as smartphones. Previously, your e-Invoice might have listed the product as "Smartphone" with a generic tax code. Now, with the new mandate, you must specify a more detailed HSN code that accurately categorizes the smartphone based on its characteristics, such as its model, features, and specifications. For instance, instead of "Smartphone," your e-Invoice might now include a 6-digit HSN code (as prescribed in the guidelines) identifying it as a "Mobile Phone with Touch Screen Display," with additional digits indicating specific features like camera resolution, storage capacity, and processor type.

For businesses, this ensures compliance, enhances tax reporting accuracy, and promotes transparency in transactions, optimizing efficiency. Similarly, for the government, enforcing the 6-digit HSN code in E-invoices underlines their commitment to streamlining tax procedures, promoting transparency, and refining the accuracy of product and service categorization.

Update on GST e-Way Bill System - September 05, 2023

As per Notification No. 78/2020 dated October 15, 2020, businesses with an Annual Aggregate Turnover (AATO) exceeding Rs. 5 Crore must incorporate a minimum 6-digit HSN code in both their e-Invoices and e-Waybills. Additionally, companies with turnover below this threshold are required to include a minimum 4-digit HSN code in their GST E-Way Bills and E-Invoices.

B2B Invoice Submission to the Invoice Registration Portal (IRP)

Through the e-invoice system, GST-registered individuals upload all B2B invoices to the Invoice Registration Portal (IRP). Subsequently, the IRP generates and dispatches a unique Invoice Reference Number (IRN), along with a digitally signed e-invoice and a QR code to the user.

According to GST Authority guidelines, e-invoice portals must report invoices within thirty days from the invoice date.

Implementing these measures ensures businesses adeptly adapt to regulatory shifts, mitigate penalties, and uphold seamless operations, aligning with GST compliance standards.

To Summarize

The government's mandate requiring businesses with an Aggregate Annual Turnover (AATO) of 5 Crores and above to include a 6-digit HSN code in E-invoices marks a significant advancement towards bolstering GST compliance. This directive presents an opportunity for businesses to refine the accuracy of their tax reporting processes, ensuring compliance in a punctual and efficient manner. Successfully navigating this transition necessitates embracing technological innovations and remaining attuned to further developments.

For streamlined and efficient operations, TallyPrime offers an exceptional solution. It ensures smooth adaptation to regulatory changes while promising hassle-free invoicing workflows.

Frequently Asked Questions (FAQs)

How does the integration of the 6-digit HSN code contribute to business classification and reporting enhancements?

The incorporation of additional digits within the HSN code facilitates a more granular classification of goods and services. This refinement elevates the precision of reporting mechanisms, in line with governmental transparency objectives, while mitigating the risk of inaccuracies in tax declarations.

When is the recommended timeframe for businesses to implement updates to their invoicing systems to comply with the new regulation?

Businesses are strongly advised to enact updates to their invoicing systems well in advance of the specified deadline, slated for December 15, 2023. Adhering to this timeline is imperative to pre-empt penalties and ensure operational continuity.

What is the optimal strategy for businesses to seamlessly integrate the 6-digit HSN code into their invoicing workflows?

Businesses should leverage sophisticated invoicing solutions and Enterprise Resource Planning (ERP) platforms, adept at facilitating the seamless integration of the 6-digit HSN code into their invoicing processes.