HSN Codes, Tax Rates & Invoicing Rules

Negi Bhaiya handed Meera a pile of invoices from Bisht Traders. "Can you check if all the HSN codes are correct?" Meera stared at the paper. Next to "Turmeric Powder" was the number 0910. Next to "Cumin Seeds" was 0909. "Bhaiya, what are these numbers?" she asked. Negi Bhaiya laughed. "Those are HSN codes. Every product in the world has a code. Today, you're going to learn how to find them, why they matter, and how to set them up in ERPLite for all of Bisht Ji's spices."

What is HSN?

HSN stands for Harmonized System of Nomenclature. That sounds complicated, so let us break it down.

• Harmonized = agreed upon by everyone
• System = an organized method
• Nomenclature = naming convention

HSN is an international system for classifying products. It was developed by the World Customs Organization (WCO). Over 200 countries use HSN codes to classify traded goods. When Bisht Ji's spices are exported, customs officers in any country can look at the HSN code and know exactly what the product is — even without speaking the same language.

In India, the GST system uses HSN codes to identify products and apply the correct tax rate.

Why Do HSN Codes Matter?

1. Correct tax rate: Different products have different GST rates. The HSN code tells you which rate applies.
2. Uniform classification: No confusion about what a product is. "Haldi" or "Turmeric Powder" — the HSN code 0910 is the same everywhere.
3. Returns and compliance: GSTR-1 (sales return) requires HSN-wise summary of sales.
4. Audit trail: Tax officers can verify that the correct GST rate was charged.

HSN Code Structure

HSN codes have a hierarchical structure:

For most GST purposes, you need 4-digit or 6-digit HSN codes, depending on your turnover:

Bisht Ji's turnover is about Rs 90 lakh. So he needs 4-digit HSN codes on his invoices.

SAC — For Services

Just like goods have HSN codes, services have SAC codes — Services Accounting Codes.

SAC codes start with 99 and follow a similar structure:

If Sharma Sir's CA firm charges for accounting services, the SAC code would fall under 9982 (Legal and accounting services).

For this book, since Bisht Ji deals in goods (spices), we will focus on HSN codes. But remember: HSN for goods, SAC for services. The principle is the same.

How to Find the Right HSN Code

Meera asked, "How do I know which HSN code to use for each spice?"

Negi Bhaiya showed her three methods:

Method 1: The Official GST Portal

Go to cbic-gst.gov.in (Central Board of Indirect Taxes and Customs). This is the official source.

1. Visit the website
2. Go to "GST Goods & Services Rates" or "HSN Code Search"
3. Type the product name (for example, "turmeric")
4. The system will show matching HSN codes and their GST rates

Method 2: GST Rate Finder App

The government has an app called GST Rate Finder available on Android and iOS. You can search for any product and find its HSN code and rate.

Method 3: Ask Your CA

When in doubt, ask your CA (like Sharma Sir). Some products can be tricky — the same item might fall under different codes depending on how it is processed.

For example:

• Fresh turmeric (raw, just harvested) = one HSN code
• Dried turmeric = another HSN code
• Turmeric powder (ground) = another HSN code
• Turmeric in consumer packing with a brand name = may have a different rate

Always verify with the official source.

The Four GST Tax Slabs

GST has four main tax slabs: 5%, 12%, 18%, and 28%. There are also items at 0% (exempt) and a few at special rates (like 0.25% for rough diamonds and 3% for gold).

0% — Exempt Items (No GST)

These items are not taxed under GST:

Rawat Aunty's kirana store sells many exempt items — loose rice, dal, fresh vegetables. This is one reason her total taxable turnover might stay below the threshold.

5% — Lower Rate

Most of Bisht Ji's spices fall in the 5% slab. Packaged spices like turmeric powder, chilli powder, cumin, coriander — all at 5%.

12% — Medium-Low Rate

18% — Standard Rate

This is the most common slab. A large number of items fall here.

28% — Luxury / Sin Goods

Some 28% items also attract an additional Compensation Cess — for example, a car might be 28% GST + 15% cess.

Quick Reference for Bisht Ji's Products

Most spices fall under Chapter 09 of the HSN (Coffee, Tea, Mate, and Spices) and are taxed at 5% when sold in packaged form.

GST Invoice Rules

Now that we know HSN codes and tax rates, let us learn about the invoice itself. GST has strict rules about what a Tax Invoice must contain.

Mandatory Fields in a Tax Invoice

Every GST Tax Invoice must have the following:

Important: If even one of these fields is missing or wrong, the buyer cannot claim Input Tax Credit on that invoice. This is why getting invoices right is so critical.

A Sample Invoice

Here is what Bisht Ji's invoice looks like:

+============================================================+
|                      BISHT TRADERS                          |
|  Main Road, Haldwani, Uttarakhand - 263139                 |
|  GSTIN: 05AADFB1234R1Z8          Phone: 9876543210         |
+============================================================+
|  TAX INVOICE                                                |
|  Invoice No: BT/2025-26/0147     Date: 15-Jan-2026         |
+------------------------------------------------------------+
|  Bill To:                                                   |
|  Mountain Spice Mart                                        |
|  Mall Road, Dehradun, Uttarakhand                           |
|  GSTIN: 05AABCM5678P1Z2                                    |
|  Place of Supply: Uttarakhand (05)                          |
+------+------------------+------+-----+--------+------------+
| HSN  | Description      | Qty  | Rate| Amount | GST        |
+------+------------------+------+-----+--------+------------+
| 0910 | Turmeric Pdr 500g|  200 |  45 |  9,000 | 5% (CGST   |
|      |                  |      |     |        | 2.5%+SGST  |
|      |                  |      |     |        | 2.5%)      |
| 0904 | Chilli Pdr 500g  |  150 |  40 |  6,000 | 5%         |
| 0909 | Cumin Seeds 200g |  100 |  60 |  6,000 | 5%         |
+------+------------------+------+-----+--------+------------+
|                         Taxable Value:     Rs 21,000        |
|                         CGST @ 2.5%:       Rs    525        |
|                         SGST @ 2.5%:       Rs    525        |
|                         ─────────────────────────────       |
|                         TOTAL:             Rs 22,050        |
+------------------------------------------------------------+
|  Amount in words: Twenty-Two Thousand Fifty Rupees Only     |
|                                                             |
|  Signature: ____________                                    |
+============================================================+

Three Types of GST Documents

Not every sale needs a full Tax Invoice. GST law defines three main types of documents:

1. Tax Invoice

• Issued by a regular GST-registered person
• Contains all the fields listed above (GSTIN, HSN, tax breakup, etc.)
• The buyer can use this to claim Input Tax Credit
• Bisht Ji issues Tax Invoices for all his sales

2. Bill of Supply

• Issued by a person registered under the Composition Scheme
• Also issued when selling exempt goods (0% GST items)
• Does NOT show any tax breakup (no CGST, SGST, IGST columns)
• Must say "Composition Taxable Person" on it
• The buyer cannot claim ITC on a Bill of Supply

If Rawat Aunty registers under the Composition Scheme, she will issue Bills of Supply, not Tax Invoices.

3. Receipt Voucher

• Issued when you receive advance payment before delivering goods or services
• GST must be paid on the advance
• When the actual supply happens, a Tax Invoice is issued and the advance is adjusted

Quick Comparison

Credit Notes and Debit Notes

Sometimes after issuing an invoice, something changes. For example:

• Bisht Ji sent 200 packets but 10 were damaged. The buyer returns them. Bisht Ji needs to reduce the original invoice value. He issues a Credit Note.

• Bisht Ji realized he charged Rs 40 per packet but the agreed price was Rs 45. He needs to increase the invoice value. He issues a Debit Note.

Credit Note

A Credit Note reduces the value of a previous invoice. It reduces the seller's output tax liability.

Use it when:

• Goods are returned
• Price is reduced after the sale
• Tax rate was charged higher than correct

Debit Note

A Debit Note increases the value of a previous invoice. It increases the seller's output tax liability.

Use it when:

• Additional charges are added
• Price is increased after the sale
• Tax was charged lower than correct

Both Credit Notes and Debit Notes must be reported in GSTR-1 (we will cover this in Chapter 20).

Hands-On: Setting Up HSN Codes in ERPLite for Bisht Ji

Negi Bhaiya said, "OK Meera, now let's set up all of Bisht Ji's products with the correct HSN codes and GST rates in ERPLite."

Step 1: Open the Item Master

Go to Masters > Items. Click on the first item: Turmeric Powder 500g.

Step 2: Fill in the Tax Details

In the item details form, find the Tax / GST section:

Click Save.

Step 3: Repeat for All Items

Meera went through each of Bisht Ji's products:

Step 4: Verify with a Test Invoice

To make sure everything is working, Meera created a test sales invoice:

1. Go to Transactions > Sales Invoice > New
2. Select customer: Mountain Spice Mart (Dehradun)
3. Add item: Turmeric Powder 500g, Qty: 10, Rate: Rs 45
4. ERPLite automatically fills in:
   • HSN Code: 0910
   • GST Rate: 5%
   • CGST: 2.5% = Rs 11.25
   • SGST: 2.5% = Rs 11.25
   • Total: Rs 472.50

"Perfect!" said Negi Bhaiya. "Now every time you create an invoice for Bisht Ji, the HSN code and GST will appear automatically. No need to remember codes or calculate tax manually."

Step 5: Check Inter-State Invoice

Meera then created a test invoice for a Delhi customer:

1. Select customer: Delhi Spice House (New Delhi)
2. Add item: Cumin Seeds 200g, Qty: 50, Rate: Rs 60
3. ERPLite automatically shows:
   • HSN Code: 0909
   • GST Rate: 5%
   • IGST: 5% = Rs 150 (no split into CGST/SGST because it is inter-state)
   • Total: Rs 3,150

ERPLite detects the inter-state sale (Uttarakhand to Delhi) and automatically switches from CGST+SGST to IGST.

Quick Recap

• HSN (Harmonized System of Nomenclature) is an international system to classify products. Every product has a unique code.
• SAC (Services Accounting Code) is the equivalent for services. SAC codes start with 99.
• Use cbic-gst.gov.in or the GST Rate Finder app to look up HSN codes.
• GST has four main slabs: 5%, 12%, 18%, 28%. Some items are exempt (0%).
• A Tax Invoice must have: supplier and buyer details, GSTIN, invoice number, date, HSN code, quantity, rate, taxable value, CGST/SGST/IGST amounts, total, and signature.
• Bill of Supply is for Composition Scheme dealers or exempt goods — no tax breakup shown.
• Receipt Voucher is issued when advance payment is received.
• Credit Notes reduce an invoice value. Debit Notes increase it.
• In ERPLite, set up HSN codes and GST rates in the Item Master. The software auto-calculates tax on every invoice.

Practice Exercise

Exercise 1: Find the HSN Code

Look up the HSN codes for the following products (use cbic-gst.gov.in or the GST Rate Finder app):

1. Basmati Rice (branded, packaged)
2. Honey (natural)
3. Mustard Oil
4. Washing Soap
5. Notebooks (paper)

Exercise 2: Identify the Tax Slab

For each item below, write the GST rate slab (0%, 5%, 12%, 18%, or 28%):

1. Fresh tomatoes from a farmer
2. Branded packaged atta (wheat flour)
3. A laptop computer
4. A bottle of Coca-Cola
5. A mobile phone
6. A newspaper
7. Toothpaste
8. Ghee (cow ghee, branded)

Exercise 3: Spot the Invoice Errors

Look at this invoice and find what is wrong (there are 4 errors):

  BISHT TRADERS
  Haldwani, Uttarakhand
  Invoice No: 147          Date: 15/01/2026

  Sold to: Some Customer, Dehradun

  Turmeric Powder    200 pcs x Rs 45  = Rs 9,000
  GST @ 5%                            = Rs   450

  Total: Rs 9,450

(Hint: Compare with the mandatory fields we listed above.)

Exercise 4: Credit Note or Debit Note?

For each situation, say whether Bisht Ji should issue a Credit Note or Debit Note:

1. A customer returns 50 packets of damaged chilli powder.
2. Bisht Ji realizes he charged 12% GST instead of the correct 5%.
3. The customer agrees to pay Rs 5 more per packet because of a quality upgrade.
4. Bisht Ji gave an extra discount of 10% after the invoice was already sent.

Exercise 5: ERPLite Setup

If you have access to Udyamo ERPLite, set up the following items with correct HSN codes and GST rates:

1. Fennel Seeds (Saunf) 200g
2. Bay Leaves (Tej Patta) 50g
3. Fenugreek Seeds (Methi) 100g

Create a test invoice for an intra-state sale and an inter-state sale. Verify that the tax is calculated correctly.

Fun Fact

The HSN system was first created in 1988 by the World Customs Organization based in Brussels, Belgium. Today, over 98% of world trade is classified using HSN codes. So when Bisht Ji writes "0910" on his invoice for turmeric, a customs officer in Japan, Brazil, or Germany would instantly know he is talking about spices from the ginger family. Bisht Ji's little spice shop in Haldwani speaks the same product language as the biggest companies in the world!