HSN stands for Harmonized System of Nomenclature. It is an internationally recognized 6-to-8 digit multipurpose goods classification system developed by the World Customs Organization (WCO).

In India, the GST Council adopted the HSN system to standardize product categorization, establish uniform tax rates across states, and simplify customs operations.

HSN Digit Requirements on Invoices

According to GST Notification No. 78/2020-Central Tax:
  • Businesses with Turnover up to ₹5 Crores in preceding FY: - B2B Invoices: 4-digit HSN code is mandatory. - B2C Invoices: 4-digit HSN is optional.
    • Businesses with Turnover exceeding ₹5 Crores: - Mandatory 6-digit HSN code on all B2B and export invoices.
      • Exports and Imports: - Mandatory 8-digit HSN code.

        Decoding an HSN Code Example

        Let's take HSN Code 8471.30.10:
        • First 2 Digits (84): Chapter (Nuclear reactors, boilers, machinery, mechanical appliances; parts thereof).
          • Next 2 Digits (71): Heading (Automatic data processing machines).
            • Next 2 Digits (30): Sub-heading (Portable digital computers / laptops).
              • Final 2 Digits (10): Tariff item / National specification.

                Using accurate HSN codes is vital because incorrect codes can result in GST notices, penalties, or rejected Input Tax Credit claims for your clients.