Implementation of mandatory mentioning of HSN codes in GSTR-1 & GSTR 1A

Learn about the implementation of mandatory mentioning of HSN codes in GSTR-1 and GSTR-1A with examples.

Understand the mandatory use of HSN Code in GSTR-1 and GSTR-1A with detailed examples to ensure GST compliance.

What is GSTR-1?

GSTR-1 is a monthly or quarterly return that registered taxpayers must file to report details of outward supplies (sales of goods and services) made during the period. It includes:

• Details of invoices issued.
  
• Debit and credit notes.
  
• Exports and taxable supplies.

What is GSTR-1A?

GSTR-1A is an amendment form that allows suppliers to modify details of outward supplies if discrepancies are identified between GSTR-1 and the information auto-populated in GSTR-2A.

What is an HSN Code?

HSN codes are standardized international codes used to classify goods, while SAC (Services Accounting Codes) are used for services under GST. These codes help determine the applicable GST rate for a product or service.

Mandatory Mention of HSN Codes in GSTR-1 & GSTR 1A

1. Turnover Thresholds for HSN Reporting
   • Turnover up to ₹5 crore: HSN codes for 4 digits must be mentioned for B2B transactions.
     
   • Turnover above ₹5 crore: HSN codes for 6 digits must be mentioned for all transactions (B2B and B2C).
2. Applicability
   • HSN codes are mandatory for each item in the invoice reported in GSTR-1.
     
   • Taxpayers must ensure the correct classification of goods/services to avoid errors in tax filings and audits.

Examples

1. Example 1: Small Business (Turnover below ₹5 crore)
   • Scenario
     
   • A small furniture seller supplies goods to a registered business (B2B).
   • Product: Wooden chair.
   • HSN Code for “Wooden Chair”: 9403.

GSTR-1 Entry

Invoice NO	Description	HSN CODE	Quantity	Value	GST Rate	Taxable value	IGST	SGST	CGST
001	Wooden chair	9403	100	₹5,000	18%	₹5,00,000	0	₹45,000	₹45,000

Example 2: Large Business (Turnover above ₹5 crore)

Scenario

• A pharmaceutical company supplies medicine to both businesses (B2B) and consumers (B2C).
  
• Product: Paracetamol.
  
• HSN Code for “Paracetamol”: 3004.

GSTR-1 Entry

Invoice NO	Description	HSN CODE	Quantity	Value	GST Rate	Taxable value	IGST	SGST	CGST
A1	Paracetamol	30049099	100 Boxes	₹1,000	12%	₹100,000	₹12,000	₹0	₹0
A2	Paracetamol	30049099	10 Boxes	₹1,000	12%	₹10,000	0	₹600	₹600

Example of Errors Rectified in GSTR-1A

• If the supplier enters the wrong HSN code in GSTR-1 (e.g., 3004 instead of 30049099), it can lead to mismatched filings.
  
• The supplier can amend the HSN code in GSTR-1A to ensure accuracy.

Key Benefits of Using HSN Codes

1. Uniformity: HSN codes create a standard system for classifying goods and services across India.
   
2. Simplified Taxation: Helps in determining the correct GST rates and avoiding classification disputes.
   
3. Easier Reconciliation: Enables easy matching of inward and outward supply data between GSTR-1, GSTR-2A, and GSTR-3B.

Conclusion

It’s crucial for businesses to mention the correct HSN codes in GSTR-1 and GSTR-1A to avoid penalties, mismatches, or delays in ITC claims. Leveraging accurate software tools for classification can help maintain compliance effortlessly.

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