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

What You Need to Know

From January 2025, GSTN started phasing in the implementation of mandatory HSN codes in Table 12 of both GSTR 1 and GSTR 1A. It is a step based on the correct reporting of tax that has minimal human errors and simplifies compliance for businesses across the nation.

Below is a blog that has broken down what HSN codes are, change that has been introduced in Phase III, and compliance steps that need to be followed by businesses in India.

What Are HSN Codes and Why Are They Important?

It is, in fact the Harmonized System of Nomenclature, or HSN-an internationally accepted classification of goods and services. It classifies products or services with a unique numerical code, thereby standardizing trade and tax systems.

HSN is important for Goods and Services Tax in India in the following manners:

The implementation of HSN codes must be done correctly, and GST registered entities should cover it.

Phase III Implementation: Key Changes

GSTN has brought phase III in the process of reporting of HSN Codes in GSTR -1 and GSTR-1A. Here are the critical changes in the same:

  1. Segmentation of Table 12
    • Table 12 divided into two heads:
      • B2B Supplies: Business-to-business.
      • B2C Supplies: Sales to consumers.
    • Separation gives clear clarity and easy reporting of supplies.
  2. Validations Rules of Supplies and Value of Taxation
    • These supplies and taxation reported values have the new validations developed which cross-matching will happen on this reported value of supplies.
    • The business must complete the submission during this time period, so the rule will initially serve as a warning due to the mismatching.
  3. Features associated with the upgraded user
    • Download HSN Code List now with a new button whereby taxpayers can download the latest HSN and SAC codes along with descriptions in the Excel format.
    • My Master now facilitates search on product descriptions, making it easy to decide which HSN codes to use.

Change in Detail

  1. Verification for B2B Supplies
    • Verification rules will be applicable on tables like:
      • 4A, 4B, 6B and 6C for registered recipient.
      • 9A, 9B, and 15A for Exports or to registered recipient. 
    • This verification is an adjustment of tax values with correct tax amount.
  2. Verification in B2C Supplies
    • We will verify the non-registered recipient on the table such as.
      • 5A, 6A, 7A, and 7B. Domestic Supplies for non-registered recipient.
      • 9A (Ex) and 10 or 15 for unregistered recipient.

Addressing Amendments

If they conduct a revaluation, they will compare it based on differential value to eliminate the reuse of similar data.

Business Implication

Phases III Changes to GST registered will have more substantial effects for tax payers as follows -What Businesses should know:

Benefits of the new system
Challenges to be Overcome

Steps to comply with Phase III

To align the business to the new needs and ensure compliance, the businesses need to do:

  1. Study the Advisory
    • Read the official advisory given by GSTN in detail and understand what is changed and its implications.
    • The complete guidance is available on the GST portal that can be referred to.
  2. Accounting System
    • Check whether your accounting and billing software has the facility of dropping down the codes of HSN.
    • If yes then collaborate with the software vendor also to make the changes
  3. Train Your Employee
    • Train those employees who are handling GST return, which will file returns along with new updations.
    • Completely educate them about the drooping system as well as newly implemented validation rule and all change
  4. Validation Warnings Monitoring
    • Develop a procedure in order to trace the validation warnings that are arising while filing of returns.
    • Clear up the mismatches at once so no further penalties should arise.

FAQs on HSN Code Implementation

Q1: Will the validation warnings prevent the returns from being filed?

No, in the initial days, the validation warnings will not stop the filing of returns. However, the business needs to correct the warnings so as not to incur improper compliance in the future.

Q2: How can I get the new list of HSN codes?

You can download the latest HSN and SAC codes from the GST portal by clicking on the "Download HSN Code List" button on Table 12.

Q3: Is the drop-down selection compulsory for all taxpayers?

No, HSN code entry cannot be done manually. All the taxpayers must choose the appropriate HSN codes available in the list.

Why Compliances Are Important

In case of non-compliance with the latest rule, among other issues, the following may be faced:

Companies can avoid such issues and maintain smooth compliance with GST regulations by raising awareness and taking proactive measures.

Conclusion
The introduction of HSN codes in GSTR-1 and GSTR-1A in Phase III is a major step toward the betterment of GST compliance and accuracy. Mandatory drop-down selection, validation rules, and enhanced features make the process easy for businesses and promote transparency in taxation.
For that, companies should update their systems, train the teams, and be vigilant for validation warnings. Need help?
Contact Book My Accountant for expert assistance with GST compliance, tax planning, and more. Together, let's simplify your tax journey!

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Understanding the New Form GSTR-1A: A Guide for Businesses

The Indian GST regime is still under an ameliorative process, which introduces new forms and procedures on the tax compliance. Among such new forms is Form GSTR-1A, which is essential for correcting the records about outward supplies made by the taxable person. This is a comprehensive amending return in respect of the outward supplies made during a month, which is a consolidated return under Form GSTR-1, which every registered dealer has to file.

What is Form GSTR-1A?

The registrant can make changes to the sale details captured in GSTR-1 through an ancillary GST form. In case you find any difference or you require to update additional information for GSTR-1 GSTR-1A allows you to make these changes before the submission of GSTR-3B return for the same period.

Why is it Important?

To report tax accurately and avoid prosecution for GST revenue offenses, is mandatory for them. Such mistakes cause wrong tax computations or assessments on your part, fines or assessments that you never expected, or audit. Through the filing of GSTR-1A, you will be in a position to have correct records of your outward supplies since they will help you avoid some complications when filing GSTR-3B.

Who Should File the form?

Any registered taxpayer, who finds any discrepancy or mistake after filing of GSTR 1 should file GSTR 1A. This form is useful to businesses that they make many transactions with the clients; because they are able to rectify many factors that are on the invoices such as details, taxes, and other rates.

Steps to File GSTR-1A

Filing GSTR-1A is a straightforward process:

  • Access the Form: You have to go to the GST portal and then click on the Returns Dashboard. Choose the correct financial year and return period, ( GSTR-1A Visible after filed GSTR-1 ) then go to the GSTR-1A section and click on “Prepare Online”.
  • Amend Details: Recall the particulars from GSTR-1. Some of the changes that can be made include changing the invoice numbers, altering the dates or modifying the tax values.
  • Add Missed Records: In case you have not been able to include any record in the GSTR-1, you can include it in GSTR-1A. Make certain that all entries are correct.
  • Save and Submit: Before submitting the form, check that it opens after you have saved all the corrections.
  • This step is very important in order to prevent mistakes in your GSTR-3B.

Effect on GSTR-3B and GSTR-2B

The system automatically populates the changes made in GSTR-1A in the taxpayer's GSTR-3B and the recipient's GSTR-2B during the subsequent tax period. This helps to maintain the compliance of your tax returns and reduces the chances of encountering problems during an audit.

Conclusion

GSTR-1A form is one of the critical forms under the GST structure. It allows for the amendment of any errors made during the first filing of GSTR-1, and this makes your tax information accurate. If you manage it properly, you will not have to pay penalties, facilitate your tax return, and follow the GST norms.

At Book My Accountant, we know how challenging GST can be and how it affects your business. Our team of specialists is ready to assist you in understanding all the complexities of GST returns, including 1A. To learn more about our professional services in filing your GST returns and compliance, contact us today.

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