The Goods and Services Tax Network (GSTN) has announced Phase 3 of HSN code reporting, effective for the May 2025 return period. This is part of a broader effort by the government to improve the quality of data in GST returns by making sure that reporting of goods and services happens with accurate classification codes.
This is not the first time that the government took such steps and have been gradually tightening HSN reporting rules since 2022 through Phase 1 and Phase 2. With Phase 3 now live, many businesses will need to adjust how they prepare their invoices and file their GST returns- especially GSTR-1 as its reporting has experienced the major change as per phase-3 advisory.
Changes Announced Earlier in Phase 1 and Phase 2
– Phase 1 (April 2022 – August 2022)
This was the starting point for the government to begin structuring the HSN reporting:
- Small taxpayers (with annual turnover up to ₹5 crore) were asked to report 2-digit HSN codes in invoices.
- Larger taxpayers (turnover above ₹5 crore) had to report 4-digit HSN codes.
- Then, from August 2022, large taxpayers were required to report 6-digit HSN codes instead of 4.
- Importantly, manual entry of HSN codes was still allowed. The GST portal would show a warning if a wrong code was entered, but it did not stop filing.
– Phase 2 (November 2022)
In phase 2, HSN rules were made stricter:
- Small taxpayers had to move from 2-digit to 4-digit HSN codes.
- Larger businesses continued with 6-digit HSN codes.
- Manual entry was still possible, but the system gave validation messages if codes were invalid or mismatched.
The idea was to encourage cleaner reporting, without immediately enforcing penalties.
What’s New in HSN Reporting Phase 3 (Effective from May 2025 Return Period)
Phase 3 takes a major step forward in enforcing standardization of HSN codes and reducing mistakes. Here’s what’s changed:
1. No More Typing HSN/SAC Codes Manually
- You cannot manually type the HSN or SAC codes anymore.
- You must select the correct code from a dropdown list provided by the GST portal.
- This ensures that only valid codes are used — no typos or outdated codes.
2. GSTR-1 Table 12 Now Split into Two Tabs
- Table 12 in GSTR-1, where you enter HSN/SAC details, now will appear in two sections:
- B2B (Business-to-Business) Supplies
- B2C (Business-to-Consumer) Supplies
- This split helps improve visibility of transactions based on the type of customer.
3. Introduction of a New Table: Table 13
- A new section called Table 13 is now mandatory.
- In this section, businesses need to report a summary of all documents issued during the month, such as:
- Tax invoices
- Credit notes
- Debit notes
- Delivery challans, etc.
- This helps the tax department cross-check the issued number of invoices with the reported ones in return.
4. Built-In Error Checks (But Not Blocking Yet)
- The GST portal will now automatically cross-check values reported in Table 12 with other tables like Table 4, 5, and 6.
- If there are mismatches (e.g., different tax amounts for the same invoice), the system will show a warning message.
- For now, these messages do not stop you from filing, but this may change in the future.
How to Adapt to the Latest HSN Changes?
These changes are technical, but they don’t need to be overwhelming. Here are some simple steps you should focus on right now:
1. Check and Clean Up Your HSN/SAC Master List
- Review the codes you currently use for your products and services.
- Remove outdated or incorrect codes.
- Make sure the codes match the latest GSTN-approved list.
2. Start Using “My HSN Master”
- The GST portal now lets you save your frequently used HSN codes.
- This saves time while filing and helps avoid mistakes.
3. Train Your Team
Your accounting or GST team should know:
- How to select codes from the dropdown
- How to correctly fill Table 13
- How to handle warning messages during filing
4. Update Your ERP or Billing Software
Make sure your software can:
- Handle dropdown-based HSN/SAC entry
- Map correct HSN codes to each item automatically
- Prepare Table 13 with document summaries
Final Thoughts
HSN reporting may sound like a small part of GST compliance, but it’s becoming more important with every phase. Accurate HSN/SAC reporting means fewer notices, better audit readiness, and cleaner filings.
With Phase 3 now in effect, the government is moving from “advisory and optional” to “structured and system-enforced.” Businesses that stay ahead of these changes will save time, avoid errors, and build trust with tax authorities.
