Updated as per CGST Notification No. 12/2017 dated 28.06.2017 and Notification No. 78/2020 – CT dated 15.10.2020
When it comes to GST compliance, one of the most common questions raised by taxpayers and professionals is:
“When and how many digits of HSN code should be mentioned on a tax invoice?”
In this blog, we’ll explain the latest rules for HSN code applicability on tax invoices, based on your annual turnover, along with exemptions for certain cases. Let’s break it down step-by-step for easy understanding.
📌 What is HSN Code?
HSN (Harmonized System of Nomenclature) is a globally accepted system for classifying goods. Under GST, these codes help in the proper classification of goods for tax rate applicability and statistical purposes.
🔍 HSN Code Requirement on Tax Invoices – As per Latest Notifications
The Central Government, through Notification No. 12/2017-Central Tax dated 28th June 2017, and Notification No. 78/2020-Central Tax dated 15th October 2020, made it mandatory to declare HSN codes on tax invoices, based on the aggregate annual turnover of the registered person in the preceding financial year.
📊 Turnover-Wise Requirement for Mentioning HSN Code on Tax Invoice
| Sl. No. | Annual Aggregate Turnover in the Preceding FY | No. of HSN Digits Required on Tax Invoice | HSN Code Requirement on B2C (Unregistered Customer) Invoices |
| 1 | Up to ₹5 Crores | 4 Digits | Not mandatory |
| 2 | More than ₹5 Crores | 6 Digits | Mandatory |
✅ Special Exemption for Small Taxpayers (Turnover up to ₹5 Cr)
If you are a small taxpayer with aggregate turnover up to ₹5 crores, you are:
- Required to mention 4-digit HSN on tax invoices issued to registered persons (B2B).
- Not required to mention HSN on B2C invoices (i.e., invoices issued to unregistered customers).
This exemption reduces the compliance burden on small businesses while ensuring proper classification for business-to-business transactions.
📅 Effective Date
This rule is applicable w.e.f. 1st April 2021, as notified through Notification No. 78/2020-CT, ensuring uniformity and clarity for taxpayers.
🧾 Why Is HSN Code Important?
- Helps in the correct classification of goods.
- Facilitates correct GST rate application.
- Essential for proper reporting in GSTR-1 and GSTR-3B.
- Assists in analytics and enforcement by tax authorities.
- Aids in international trade documentation and standardization.
⚠️ Non-Compliance Consequences
Failure to mention the correct number of HSN digits on invoices may lead to:
- Rejection of invoice by recipient for ITC purposes.
- Mismatch in GSTR-1 and GSTR-3B returns.
- Scrutiny by tax authorities.
- Penalties under GST laws for incorrect documentation.
📝 Final Takeaway
Understanding the HSN code requirement based on turnover is critical for maintaining GST compliance and avoiding unnecessary penalties. Always check your aggregate turnover in the preceding financial year to determine how many digits of HSN code you are required to mention on your tax invoice.
