Mandatory 6-Digit HSN Code in E-Invoices

In a crucial move to tax compliance and enhance transparency, the Indian government has introduced a mandatory 6-digit Harmonized System of Nomenclature code needed for taxpayers with an Aggregate Annual Turnover (AATO) of 5 crore or above. The regulation is effective from the 15^th of December, 2023, and aims to modernize the invoicing system and bring a more precise and standardized concept to taxation. In the current article, we explore the mandatory 6-digit HSN Code in e-invoices and its implications for businesses operating in the designated revenue.

Short Note on HSN Code

The Harmonized System of Nomenclature (HSN) Code is an international identification system used for the systematic goods classification in trade. It is adopted by over 200 countries, including India. The HSN code assigns a unique numerical code to each good, in several trade-related documentation, and facilitates uniformity in the classification of products as per customs clearance.

In India, the HSN code is significant for the GST, where it plays a crucial role in the systematic division of commodities for taxation purposes. The code has 6 or more digits, along with a digit giving particular information regarding the good’s nature, permitting for more information and appropriate identification at the time of transactions.

Decoding HSN Code

The framework of HSN defines in 21 sections along with 99 chapters. Each section includes the chapters and each chapter has additional parts in headings. Furthermore, headings are divided into sub-headings. Broad sections of goods are mentioned by the chapter’s title, while headings and sub-headings give huge descriptions of particular goods.

Enforcing 6-Digit HSN Code in E-Invoices

The execution of a 6-digit HSN Code in e-invoices are government’s commitment to analysing the tax process, refining the good and service classification and having more transparency.

Update regarding the GST E-way bill system:

According to the notification no. 78/2020 introduced on 15^th of October, 2020, businesses with an AATO over Rs. 5 Crore needed to involve a minimum 6-digit HSN code in both their e-invoices and bills as per the GST E-way bill system update on 5^th September, 2023. In addition, the organizations, which produce less than this turnover threshold include a minimum 4-digit HSN Code in their GST e-invoices and waybills.

Submission of B2B invoices to the Invoice Registration Portal (IRP)

All invoices related to B2B are submitted to the IRP portal by using the e-invoices system by GST-registered persons. The IRP makes a unique invoice reference number (IRN), the e-invoice must be digitally signed and a QR code to the user.

Portal of e-invoice is needed to report invoices within thirty days of invoice date according to GST Authority instructions.

Importance of having the latest guidelines for businesses

There are the latest guidelines for businesses across several industries for several key reasons:

• It is easy to fulfil regulatory compliances, which are essential to avoid penalties, legal issues, and reputational damage;
• Guidelines give the best practices of having risk management strategies as it helps in businesses recognition and mitigate potential risk.
• Quick changes in industries are often provided with new technologies and practices. This enhances efficiency, gains a competitive edge and reduces costs;
• Finances will be stable such as it will affect the taxation, financial reporting, and practices of accounting.
• Sustainable practices and innovation for businesses to adapt a changing market demands and foster long-term enhancement.
• It increases global competitiveness as it will connect you with the global economy and businesses are required to be aware of international instructions and standards.

Takeaway

The mandatory execution of a 6-digit HSN Code in e-invoices for taxpayers with AATO of 5 crores and above is progressive towards the taxation system. Enterprises that adopt this change with innovation will not only fulfil regulation needs, but also position themselves for enhanced operational efficiency and financial clarity. As in last December deadline approaches, it is imperative for affected entities to proactively integrate the 6-digit HSN code into their invoicing systems. It leads the way for a seamless transition into a new era of tax compliance.