The New Requirements

Based on a government notification from October 2020, businesses must now report HSN codes in Table 12 of their GSTR-1/1A returns. The number of digits you need to report depends on your business size:

HSN Code Requirements depending on Annual Turnover:

Minimum of 4 digits: Small Businesses
Minimum of 6 digits: Large Businesses

The requirement is determined by your Aggregate Annual Turnover (AATO) from the previous financial year.

Implementation Timeline

As this is a staged process, the government is rolling these changes out in phases to help businesses adjust:

Phase 1: Initial implementation
Phase 2: Implemented from November 1, 2022
Phase 3: From May 2025 return period (currently implemented)

What This Will Mean for Your Business

From your May 2025 GST return filing, you will need to:

• Check Turnover: Check your annual turnover for the last year so that you know if you need to switch to 6-digit HSN codes from 4-digit codes.
• Replace Your Records: Check that all your products have the right HSN codes with the expected number of digits.
• Change Your Billing: Your billing or invoicing system should note the correct HSN code and show it in your invoices.

Action Steps for Businesses

• Review Current HSN Codes: Check if your existing product codes meet the new digit requirements.
• Now update your product master: Within your inventory or online product database, verify that you also enter the correct HSN codes.
• Train your staff: Whoever is doing the billing or GST filing needs to understand the new requirements.
• Test your system to confirm that your accounting software can accept the new HSN code format.
• Consult your CA or tax expert if you are not clear on what the HSN codes are for your product.

Why These Changes Matter

These updates help:

• Improve product classification accuracy
• Enable better tax policy decisions
• Enhance trade data quality
• Streamline compliance processes

Conclusion

While the phase-wise implementation gives businesses time to adapt, it’s crucial to prepare now for the May 2025 deadline. Proper HSN code reporting will help avoid compliance issues and ensure smooth GST filing.

Stay proactive, update your systems, and ensure your business remains compliant with these new HSN code requirements.

For specific HSN codes and detailed guidelines, refer to the official GST portal or consult with your tax professional.