HSN Code Overhaul: What the New GSTR-1 Rules for 2025 Mean for Your Business

HSN Code Overhaul: What the New GSTR-1 Rules for 2025 Mean for Your Business

The Goods and Services Tax (GST) framework in India is constantly evolving, and one of the key aspects of compliance is the accurate reporting of HSN (Harmonized System of Nomenclature) codes in the GSTR-1 form. As of 2025, new rules have been implemented regarding the reporting of HSN codes. Below are the key changes and updates:

1. HSN Code Reporting Requirements for Different Types of Taxpayers:

The new rules for 2025 specify mandatory reporting of HSN codes in GSTR-1 based on the turnover of the taxpayer. Here is how it is categorized:

For taxpayers with an annual turnover of up to ₹5 crores: HSN code reporting is optional for taxpayers with a turnover of up to ₹5 crore. However, it is still recommended to ensure proper documentation.

For taxpayers with an annual turnover above ₹5 crores: HSN code reporting is mandatory for all B2B (Business-to-Business) and export transactions. Taxpayers must mention a six-digit HSN code for goods supplied.

2. Mandate for B2C Transactions:

For B2C (Business-to-Consumer) transactions:

Taxpayers with turnover above ₹5 crores must report a 4-digit HSN code for B2C supplies.

If the taxpayer has a turnover of ₹5 crore or less, the reporting of HSN codes for B2C transactions remains optional.

3. HSN Code Reporting for Services:

While the HSN code is more commonly associated with goods, services will also need to be properly classified under their respective SAC (Services Accounting Code) in GSTR-1.

The SAC codes for services should be reported in the same way as the HSN codes for goods.

4. Format and Placement of HSN Code in GSTR-1:

HSN codes are to be entered in the table of GSTR-1, specifically in Table 12 for B2B invoices and Table 13 for export invoices.

The format will require the complete HSN code (6 digits) for goods in the B2B and export sections.

5. HSN Code Non-Compliance Penalties:

Non-reporting or incorrect reporting of HSN codes can lead to penalties, fines, and additional scrutiny by tax authorities.

Taxpayers who fail to comply with the updated HSN reporting requirements will be subject to a penalty as prescribed under the GST laws.

6. Impact on GST Returns and Audits:

Accurate reporting of HSN codes is critical for the smooth filing of GST returns and avoiding disputes or mismatches during audits.

Tax authorities will be able to track the nature of the goods and services more effectively, which could impact the verification of tax credits, refunds, and overall GST compliance.

7. HSN Code Reconciliation:

With the mandatory reporting of HSN codes, businesses must ensure that their internal records, such as invoices and books of accounts, align with the HSN codes reported in GSTR-1.

The tax authorities may use this data to cross-check consistency across multiple filings, including GSTINs, returns, and e-way bills.

Conclusion

The new HSN code reporting requirements under GSTR-1 for 2025 bring stricter compliance norms for taxpayers with turnover exceeding ₹5 crores. These changes aim to improve transparency, ensure proper classification of goods and services, and make GST filings more accurate. Taxpayers should ensure they are well-prepared for these updated requirements by revising their systems, training staff, and regularly reconciling their records to avoid penalties.

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