Suppose you are a wholesale business owner operating a venture whose aggregate annual turnover (AATO) is Rs. 5 Crores and above. Before, while creating e-Invoices of your transactions, you simply filled in the name of the product, its quantity, the price per item and the tax per item.

However, with the latest announcement that from the GST e-invoice system mandate of 4th December 2023 there is a twist. According to it, AATO of more than equal to 5 crore, 6-digit HSN numbers will be applicable to e-invoices starting from December 15, 2023. The businesses with a turnover up to Rs. 5 crores should use 4-digit HSN code in all the bills of B2B sales. However, this reporting is optional for B2C invoices where the electronic invoicing information can be reported in any of the above means as mentioned above. To put it in layman language, starting 15th December 2023, e-invoice must be accompanied by at least six digits of the Harmonised System of Nomenclature (HSN) code.

For example, you want to sell phones, more specifically the smart ones that are currently popular in the market. Earlier your e-Invoice for this specific product could have been captured as “Smartphone,” the general tax code. However, due to the new code mandate you need to provide a more accurate HSN code of the Smartphone based on its nature like its model, features and specifications etc. For instance, where you may previously have used the term “Smartphone”, your e-Invoice may now be called “Mobile Phone with Touch Screen Display” and include 6 digit HS-code numbers providing extra digits to detail the camera resolution, the GB size for storage and the processor type.

For the businesses, this helps in preventing non-compliance, improves the tax returns an organisation affords as well as improving the transparency of transactions hence increasing efficiency. Equally, for the government there are several strategic reasons to enforce 6-digit HSN code for E- invoice such as ascribing their willingness to reduce the burden of tax procedures, promote transparency, enhance accuracy of classification of products and services.

Update on GST E-way Bill System – September 05, 2023

As per paragraph 3 of Notification No. 78/2020 dated October 15, 2020, taxpayers exercising accordance with a method referred to in section 12AA of the IGST Act, who have an AATO exceeding Rs. 5 crore, shall record, in their e-Invoices issued electronically and in their e-Waybills, at least the first four digits of the HSN code. The consolidation also mandates businesses with up to the stated threshold to use at least the last four digits of the HSN code in their GST E-Way Bills and E-Invoices.

B2B Invoice Submission to the Invoice Registration Portal (IRP)

In the E-invoice system, all B2B invoices are submitted online to the IRP after GST registration of the individuals or companies. After that, the IRP creates and sends back an Invoice Reference Number (IRN), an encrypted e-invoice and a QR code to the user.

These e-invoice portals are required to submit the invoices within a thirty-day period from the date of issue as prescribed by the GST Authority.

Staking on these measures helps the businesses to effectively manage regulatory change, avoid the penalties and maintain the operational efficiency in line with GST compliance.

To Summarise

The move from the government mandating businesses with an Aggregate Annual Turnover of 5 Crores and above to introduce a 6-digit HSN code in E-invoices marks a massive step in the augmentation of the GST compliance landscape. This directive forms an opportunity for businesses to fine-tune the accuracy of their tax reporting processes, ensuring compliance in a timely and efficient way. Navigating this transition with success involves embracing technological innovation and staying tuned for additional rollouts.

For seamless and smooth operation, TallyPrime provides an excellent solution. It is assured that regulatory changes will go smoothly, promising problem-free invoicing workflows.

Frequently Asked Questions (FAQs)

How does the integration of the 6-digit HSN code contribute to business classification and reporting enhancements?

Incorporation of additional digits under the HSN code makes the classification of goods and services more granular. Such refinement improves the reporting mechanisms’ precision, in tune with governmental transparency objectives, while mitigating the risk of errors in tax declarations.

When is the recommended timeframe for businesses to implement updates to their invoicing systems to comply with the new regulation?

Businesses are highly advised to implement changes in their invoicing system much before the deadline that has been specified to fall on December 15, 2023. The timeline is of utmost importance to avoid penalties and to ensure continuity in business operations.

What is the optimal strategy for businesses to seamlessly integrate the 6-digit HSN code into their invoicing workflows?

Businesses should leverage sophisticated invoicing solutions and Enterprise Resource Planning platforms capable of seamlessly integrating the 6-digit HSN code into the invoicing process.