6-Digit HSN Code Mandate in E-Invoices for Taxpayers from December 15, 2023: Key Points to Consider

A minimum 6-digit HSN code is compulsory for taxpayers with an Annual Aggregate Turnover (AATO) of Rs. 5 crores and above from December 15, 2023, per the latest GST e-Invoice System mandate.

The update states as follows: “Atleast 6-digit HSN will be mandatory in e-lnvoices, for taxpayers whose AATO is 5Cr and above, from 15th of December 2023.”

The latest update from the GST E-invoice system on December 04, 2023, mandates taxpayers with an Aggregate Annual Turnover (AATO) of Rs. 5 Crores and above to include a minimum of 6 digits of the HSN code in e-Invoices. This requirement will be effective from December 15, 2023.
 

Enforcing 6-Digit HSN Code in E-invoices for Enhanced Transparency and Precision
Implementing the 6-digit HSN code in E-invoices highlights the government’s commitment to simplifying tax procedures, enhancing transparency, and refining the precision of product and service classification.
 

GST E-way Bill System Update on September 05, 2023
As per Notification No. 78/2020 dated October 15, 2020, businesses with an Annual Aggregate Turnover (AATO) over Rs. 5 Crore are required to include a minimum 6-digit HSN code in both their e-Invoices and e-Waybills, according to the GST E-way bill system update on September 5, 2023. Also, companies that generate less than this turnover threshold ought to include a minimum 4-digit HSN code in their GST E-Way Bills and E-Invoices.
 

Uploading B2B Invoices to the Invoice Registration Portal (IRP)
All B2B invoices are uploaded to the Invoice Registration Portal (IRP) using the e-Invoice System by GST-registered persons. The IRP creates and sends a unique Invoice Reference Number (IRN), a digitally signed e-invoice and a QR code to the user.
E-invoice portals are required to report invoices within thirty days of the invoice date as per GST Authority guidelines.
 

Significance of the Latest Update for Businesses
Businesses operating above the designated AATO range must make swift adjustments to comply with this rule. The GST structure relies heavily on the globally accepted classification system known as the HSN code, utilising an organized classification of goods and services. It makes information sharing between companies and tax authorities easier and more efficient.
 - Comprehensive Classification of Goods and Services
 - Enhanced Accuracy in e-Invoice Reporting
 

Understanding the HSN Code
The Harmonized System of Nomenclature or simply HSN has come into effect for the classification of goods and services globally in a systematic and organised manner. Developed by the World Customs Organization (WCO), the HSN code was introduced in 1988. It is a 6-digit uniform code accepted worldwide, classifying more than 5000 products.

HSN Worldwide
Used over 200+ nations and economies, the HSN system offers the following:
- Uniform classification
- Collection of international trade statistics
- Base for customs tariffs
The HSN code remains the same for most goods. Nevertheless, minor variation is based on the nature of goods classified.


HSN in India
A member of the World Customs Organization (WCO) since 1971, India initially started using 6-digit HSN codes for classifying Customs and Central Excise commodities. However, for maximum precision, Customs and Central Excise introduced two more digits, making an 8-digit classification.

Decoding the HSN Code
The HSN structure comprises 21 sections, with 99 chapters, encompassing about 1,244 headings and 5,224 subheadings.
- Each section is divided into chapters, and each chapter is further divided into headings. Headings, in turn, are broken down into subheadings.
- Broad categories of goods are described by section and chapter titles, while headings and subheadings provide detailed descriptions of specific products.

For example: Nylon Molding Powder (HSN Code: 39 08 90 10)
- The first two digits (39) represent the chapter under HSN codes.
- The next two digits (08) represent the headings under chapters.
- The next 2 digits (90) represent the sub-headings, 6 digits HSN code is accepted worldwide.
- The next 2 digits (10) sub-classify the product tariff heading during import and export of supply.

Why is the HSN Important under GST?
The purpose of HSN codes is to systematise GST and gain global acceptance. The utilisation of HSN codes eliminates the necessity to upload detailed goods descriptions, saving time and simplifying the filing process through automated GST returns.
If a dealer or service provider’s turnover falls within the specified slabs, they must actively furnish a summary of sales categorised by HSN/SAC in their GSTR-1.

FAQs

1. How does the 6-digit HSN code enhance classification and reporting for businesses?
The inclusion of additional digits in the HSN code provides a more detailed classification of goods and services. This improvement enhances the accuracy of reporting systems, aligning with the government’s commitment to transparency and reducing the risk of errors in tax filings.

2. When should businesses update their invoicing systems to comply with the new regulation? 
It is strongly advised that businesses update their invoicing systems before the mentioned deadline, i.e., December 15, 2023. Timely compliance is imperative to avoid penalties and disruptions in operations.

3. What is the best way for businesses to integrate the 6-digit HSN code into their invoicing workflows? 
Businesses must take the support of modern invoicing solutions and Enterprise Resource Planning (ERP) systems, offering effortless incorporation of the 6-digit HSN code into their invoicing processes.
The government’s significant stride in enhancing GST compliance involves mandating businesses with an AATO of 5 Crores and above to include a 6-digit HSN code in E-invoices. Businesses should take this update as an opportunity to upgrade the accuracy of their tax reporting processes, ensuring timely and seamless compliance. Successfully navigating this change requires embracing technological solutions and staying informed about further developments.

In India, EaseMyGST’ GST product suite has clients that include over 1000 corporates. Check out the solution now!