Starting from the January 2025 tax period, the Goods and Services Tax Network (GSTN) has introduced significant changes to Table 12 of the GSTR-1 and GSTR-1A forms, focusing on the mandatory reporting of Harmonized System of Nomenclature (HSN) codes.

Understanding HSN Codes:

Internationally recognized numerical codes classify goods and services as HSN codes, facilitating systematic and uniform taxation across borders. Incorporating HSN codes into GST returns ensures consistency, reduces ambiguities, and streamlines the tax filing process.

Phase-Wise Implementation of HSN Reporting:

The GSTN has adopted a phased approach to implement mandatory HSN code reporting in phases as below:

I:

• Introduced the requirement for taxpayers to report HSN codes based on their Aggregate Annual Turnover (AATO).
• Taxpayers with AATO up to ₹5 crore had to report 4-digit HSN codes, while those exceeding ₹5 crore had to report 6-digit HSN codes.
• During this phase, the system permitted manual entry of HSN codes and issued warnings for incorrect entries without blocking the filing process.

II:

• Enhanced the validation mechanisms by introducing system warnings for incorrect HSN codes.
• The system allowed taxpayers to manually enter HSN codes but provided alerts to encourage accurate reporting.

III (Effective January 2025):

• Mandates the selection of HSN codes from a predefined dropdown list, eliminating manual entry.
• This phase aims to standardize HSN reporting and minimize errors.
• Additionally, Table 12 has been bifurcated into two tabs: “B2B Supplies” and “B2C Supplies,” allowing taxpayers to report these transactions separately.
• The system now validates the values of supplies and tax amounts reported in both tabs of Table 12 against corresponding tables in GSTR-1 to ensure consistency.
• Initially, these validations operate in a warning mode, alerting taxpayers to discrepancies without blocking the return filing process.

Key Changes in Phase III:

Mandatory HSN Code Selection:

• Taxpayers with an AATO up to ₹5 crore are required to report 4-digit HSN codes for goods and services.
• Taxpayers with an AATO exceeding ₹5 crore must report 6-digit HSN codes.
• Manual entry of HSN codes is no longer permitted; taxpayers must select the appropriate HSN code from a provided dropdown list.

Auto-Populated Descriptions:

• Upon selecting an HSN code, a customized description from the HSN master will automatically populate a new field labeled “Description as per HSN Code,” ensuring consistency and reducing errors.

Separate Tabs for B2B and B2C Supplies:

• Table 12 is now divided into two tabs: “B2B Supplies” and “B2C Supplies,” allowing taxpayers to report these transactions separately.

Validation Mechanisms:

• The system will validate the values of B2B and B2C supplies reported in Table 12 against corresponding tables in GSTR-1 to ensure consistency.
• Initially, these validations will operate in a warning mode, alerting taxpayers to discrepancies without blocking the return filing process.

Additional Enhancements:

Downloadable HSN Codes List:

• A new “Download HSN Codes List” button now enables taxpayers to download an updated list of HSN and SAC codes along with their descriptions.

Searchable Product Names:

• A “Product Name as in My Master” feature allows taxpayers to search and auto-populate details, facilitating easier selection of HSN codes.

Implications for Taxpayers:

These changes aim to standardize HSN code reporting, minimize errors, and enhance the overall accuracy of GST filings. Taxpayers should familiarize themselves with the updated process and ensure compliance to avoid potential issues during return filing. Non-compliance may result in faulty returns, affecting the buyer’s ability to claim Input Tax Credit (ITC) and necessitating corrections by the supplier.

In conclusion, the mandatory HSN code reporting requirements effective from February 2025 represent a significant step towards a more standardized and error-free GST filing process. By understanding and implementing these changes, taxpayers can contribute to a more efficient and transparent tax system.