To ensure accuracy and consistency in GST compliance, GSTN has decided to implement phase III of mandatory HSN code reporting from next month. Experts say that this change will enable GSTN to compile more value-added reports concerning the use of inputs, input services, and their contribution to final production, besides curbing tax evasion.
This reporting has to be done in GSTR-1/1A. “After successful implementation of Phase-I & Phase-II now Phase-III regarding Table 12 of GSTR-1 & 1A is being implemented, from return period February 2025,” an advisory on the GST portal said. In this phase, manual entry of HSN codes has been replaced by selecting the correct HSN code from a given dropdown menu. Additionally, Table 12 has been divided into two tabs, namely B2B and B2C, to report these supplies separately.
Further, validation regarding the values of supplies and the associated tax amounts has also been introduced for both tabs of Table-12. However, during the initial period, these validations will remain in warning mode, meaning that failing the validation will not block the filing of GSTR-1 and GSTR-1A, the advisory said.
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Form GSTR-1 is a monthly/quarterly statement of outward supplies that must be furnished by all normal and casual registered taxpayers making outward supplies of goods, services, or both. It contains detailed information on such supplies.
It is mandatory for taxpayers to report a minimum of 4 or 6 digits of the HSN (Harmonised System of Nomenclature) code in Table-12 of GSTR-1, based on their Aggregate Annual Turnover (AATO) in the preceding financial year. Taxpayers with an AATO of up to ₹5 crore are required to report 4-digit HSN codes for goods and services, while those with an AATO exceeding ₹5 crore must report 6-digit HSN codes.
HSN is an internationally accepted system for naming, classifying, and identifying products. These codes are used to classify goods and calculate GST.
Phase I of reporting HSN codes in Table 12 of GSTR-1/1A was implemented in 2020, while the second phase came into effect in 2022. The third phase is now being implemented, with the date for the fourth phase to be announced later.
Rajat Mohan, Senior Partner with AMRG & Associates, feels that the mandatory changes introduced under Phase III of HSN code implementation for GSTR-1 and GSTR-1A filings mark a significant step toward improving accuracy and consistency in GST compliance. The transition from manual entries to dropdown-based selection of HSN codes is expected to reduce reporting errors and enhance system reliability. Furthermore, the bifurcation of Table-12 into B2B and B2C tabs allows for more detailed transaction classification, aiding tax administration and analysis.
This change will enable GSTN to compile detailed reports on the use of inputs, input services, and their contribution to final production. Such analytics will assist in curbing tax evasion by addressing the misuse of fake invoices from unrelated industries to fraudulently claim additional input tax credits. By enhancing the ability of GSTN to track supply chains more accurately, this development strengthens the GST system, promoting fairness and transparency in tax compliance.
“Taxpayers should proactively prepare for this change by reviewing their systems and ensuring accurate mapping of HSN codes to minimize any future disruptions,” Mohan said.