With effect from April 1, businesses with a turnover of Rs 5 crore or above will be required to provide a six-digit HSN or tariff code on invoices for taxable goods and services. B2B invoices must also contain a four-digit HSN code if they had a turnover of up to Rs 5 crore in the previous financial year.
How does the HSN code work?
HSN stands for Harmonised System of Nomenclature code. It is mandatory on both B2B and B2C tax invoices for the supply of goods and services. The World Customs Organization (WCO) introduced this code in 1988 for the purpose of categorizing goods both nationally and internationally. Several commodities are classified by HSN codes, which have been used by India’s Customs and Central Excise since 1986. HSN codes apply to both GST and Customs. For GST purposes, the codes prescribed in the Customs tariff are also used. HSN codes are used all over the world. For each commodity, there is a different HSN code.
Is it really necessary?
A number of manufacturers, importers and exporters have been using HSN codes for a long time now. Manufacturers provided these codes even before the GST regime and importers and exporters have been providing these codes in their import and export code documents for a long time. HSN codes are mostly used by traders when they receive invoices from manufacturers or importer suppliers. Dealers with turnover less than Rs 1.5 crore do not need to adopt HSN codes for their commodities. Two-digit HSN codes are used by businesses with a turnover between Rs 1.5 crore and Rs 5 crore.
Understanding the code
In the HSN code, there are 21 sections, which are divided into 99 chapters, which are further divided into 1244 sections. The system makes GST easier to use and more widely accepted. HSN codes for goods at six digits are universally accepted. HS codes prescribed in the Customs Tariff are used for GST purposes. HS codes are prescribed in Customs Tariffs as headings (four digits), subheadings (six digits) and tariff items (eight digits). On the CBIC website, you can access these documents.
Which codes are used where?
For recognition, measurement, and taxation, various services are also classified uniformly. HSN codes are used to identify animal products, minerals, plastics, footwear, arms and ammunition, and machinery. They are also called Services Accounting Codes or SACs.
SAC HSN code: what is it?
Known as Services Accounting Code, this code is issued by the Central Board of Indirect Taxes and Customs (CBIC) to classify services under GST. Each service has its own SAC code. Under GST regime, HSNs and SAC codes are used to classify goods and services. You can use these SAC codes on invoices you create for the services you provided.