In this article, I will try to answer questions that some of you might be having in mind such as what is HSN code and for whom is it mandatory to quote HSN on invoices. So, without any further ado, let’s get started.
Q. What is HSN Code?
A. HSN stands for Harmonised System Nomenclature is a code used for classifying the goods under GST Act. It is an internationally standardized system of names and numbers used to systematically classify goods all over the world. HSN is an 8-digit code.
- Q. What does this code signify?
A. The first two digits designate the HS Chapter which represents a broader category of goods. Chapters are further divided into various headings depending upon different types of goods belonging to the same class. Hence, the second two digits designate the HS heading. The headings are further subdivided into subheadings so the third two digits designate the HS subheading. And the last two digits represent the product.
Q. How to find an HSN Code for a product?
A. To find HSN code for a product, firstly select chapter and then section/heading and then finally subheading to get the product code.
For example, HSN Code for Chocolate and Chocolate products is 18069010. Here 18 represents Chapter,06 stands for heading, 90 represents subheading and 10 represents product.
Q. For whom is the HSN code mandatory to be written on an invoice?
A. With effect from 1st April 2021
(1.) Taxpayers with an aggregate Annual Turnover of more than Rs 5 Crore during the financial Year 2020-2021 have to mandatorily mention 6 digits of the HSN Code in all tax invoices.
(2.) Taxpayers with an aggregate Annual Turnover up to Rs 5 Crore during the Financial Year:
(a) have to mandatorily mention 4 digits of HSN code for Goods and Services in B2B Tax invoices.
(b) Have an option to mention 4 digits of the HSN code for Goods and Services in B2C Tax Invoices.
(3.) Taxpayers making Export Supplies are required to quote 8 digits of HSN Code for supplies made to B2B as well as B2C.
Q. What is the SAC code? What does it denote?
A. SAC stands for Service Accounting Code is a system used for the classification of services developed by the Service Tax Department of India. Services are classified as per the Services Accounting Code (SAC). SAC is a 6-digit code. The first two digits are the same for all services i.e., 99 while the next two digits denote the major nature of service and the last two digits
denote the detailed nature of service.
Q. What are the consequences of mentioning or incorrect mentioning of the HSN Code?
A. It is very important to mention the correct HSN/ SAC Code on the tax invoices and Form GSTR-1, otherwise penalty of Rs 50,000 (Rs 25,000 each for CGST and SGST) can be levied for non-mentioning or mentioning of wrong HSN/ SAC Code under Section 125 of the CGST Act.