HSN Code on Invoices Mandatory from 1st April,2021

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HSN code mandatory from 1st April 2021
Yarab A | Mar-16-2021

In the month of October,2020, a notification mandating the HSN code on invoices was issued by the GST authorities. According to this new mandate, businesses must mention the harmonised system of nomenclature (HSN) code on tax invoice from 1st April,2021. While mandating the HSN code, there are specific guidelines issued in terms of no. of digits of HSN code to be captured on invoices.

In this blog, we have detailed the 2 broad changes mentioned below that businesses must comply with and also how you can do it in TallyPrime.

HSN code on invoices from 1st April

Basis on the aggregate turnover in the previous financial year, the larger businesses are required to capture the 6-digit HSN code and 4 digits for the smaller businesses.

Businesses whose aggregate Turnover in the preceding financial year is more than 5 crores are required to mention the HSN code at a 6-digit level. Businesses with aggregate turnover of up to 5 crores are required to capture 4-digit HSN code.

Aggregate Turnover in the preceding Financial Year

Number of Digits of HSN Code

Up to 5 crores

4 digits

Exceeding 5 Crores

6 Digits

Types of invoices on which HSN code is mandatory

Now, the next question is that, should it be mentioned on all the types of invoices or only on B2B invoices? To answer, there are different guidelines for larger and small businesses having turnover up to 5 crores.

Businesses with aggregate turnover exceeding 5 crores in the preceding financial year i.e. 2020-21, should mandatorily declare HSN code at 6 digits on all tax invoices including B2C supplies. Business aggregate Turnover up to 5 crores in 2020-21, are mandated to capture 4 digits HSN only on the B2B tax invoices. For B2C supplies, it is optional.

The below table summarises the mandatory and optional provisions of declaring HSN on different supplies.

Supplies

Exceeding 5 Crore

Up to 5 Crore

B2B supplies

Mandatory

Mandatory

B2C supplies

Mandatory

Optional

Read 'Manage HSN Codes/SAC and Tax Rates' to know how to update the HSN code using TallyPrime. 

HSN Code in GSTR-1

Just like it is mandatory to mention HSN code at 6 and 4 digits on invoices, GST returns too needs to be reported with HSN code. Businesses with an aggregate turnover exceeding 5 crores in the preceding financial year, need to upload HSN summary with 6 digits HSN code in GSTR-1 starting from 1st April,2020.

In the same way, businesses with an aggregate turnover up to 5 crores, need to upload HSN summary with 4 digits HSN code in GSTR-1 return. However, businesses can choose to mention HSN code at more digits optionally. Businesses up to 5 cores can mention HSN at 6 or 8 digits and businesses exceeding 5 crores, can optionally mention HSN at 8 digits. 

The effect of HSN summary in GSTR-1 return, both in GST portal and the offline tool was made in the month of May'21. Therefore, the new change will be effective starting from May month’s GSTR-1, to be filed in June 2021. In case of quarterly GSTR-1, you need to furnish the details at 4 digits in April to June’21 GSTR-1, to be filed in July,2021.

With this change, you need to report the HSN code of 6/4 digits mandatorily in HSN summary i.e., table 12 of GSTR-1. Also, the 'total value' in HSN summary is replaced with 'Rate of Tax'  meaning you need to furnish HSN-wise rate-wise details now.

If you are using TallyPrime, you can follow the 3 simple steps given below to update the HSN summary in GSTR-1. Soon, our new release of TallyPrime will be updated with this change so that the return filing is simple and seamless, as always. 

  • Export the GSTR-1 report in JSON format without the HSN/SAC details, and upload it to the portal.
  • Export the HSN/SAC summary in MS Excel format from the GST Annual Computation report. Add/Copy these details in the MS Excel template of the offline tool.
  • Import the MS Excel template into the offline tool and generate the JSON file. Upload this JSON file to the portal.

To know the step-by-step process to update the HSN details in GSTR-1, read 'Export GSTR-1 in JSON Format & Update Rate-wise HSN/SAC Summary'

What should businesses do from 1st April,2021?

1st April,2021 being the date from which it is mandatory to mention the HSN code at 6/4 digits, once again the businesses need to carry out the activity of figuring out the right HSN code at required digits. Here are some of the key things that will help you meet this compliance requirement.

  • Take stock of the different nature of products/services you deal with. In most cases, though the products are of different varieties, they may fall under the same chapter and heading.
  • If you are a business required to declare 6 digits HSN code on invoices, look for a precise code for the last 2 digits of HSN.
  • Update your accounting/GST software with HSN code with request digits. This can be done well before 1st April so that you are all set to issue the tax invoice that is compliant with the new requirement.

How to update HSN code in TallyPrime?

You can specify HSN code details and tax rates at different levels for the goods supplied by your business. This is the flexibility provided for ease of use to accommodate your business needs. You can specify HSN at a company level, stock group and stock item level. Also, one can specify it at the ledger level. Read 'Manage HSN Codes/SAC and Tax Rates' to know more. You can also read 'Export GSTR-1 in JSON Format & Update Rate-wise HSN/SAC Summary' to know how to update HSN details in GSTR-1 return. 

Some useful links for you to know the HSN Code and the rates applicable against them

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