If you are a business owner, you might have heard the term “HSN code” being thrown around in discussions about taxes and invoicing. But What is HSN code exactly?
Simply put, HSN code is a 6 digit uniform code used for the systematic classification of goods across the world. It classifies and identifies over 5000+ products and was developed by the World Customs Organization as a multipurpose international product nomenclature or standardised system of distinguishing products.
HSN code is required by the Ministry of Finance for businesses with a turnover of over Rs. 5 crores.
In this article, we will delve deeper into the meaning of HSN code, its significance and how it can impact your business. Also we will see What is the difference between HSN and SAC codes. So what are you waiting for? Let’s dive right into it.
What is HSN code full form?
HSN stands Harmonized System of Nomenclature. It is a multipurpose international product nomenclature. Each item that is traded globally is assigned a code. More than 200 countries and economies use the HSN code, which is a widely acknowledged system for categorising products worldwide.
The code is a key aspect of global trade since it forms the basis for tariffs and helps with uniform product classification. It is an important indicator that is also used to collect information on global trade.
More than 98% of commodities moved worldwide, according to the World Customs Organisation, are categorized using the HSN code. The system’s vast application emphasizes its significance and influence on global trade.
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Why is the HSN code is important in India?
The fact that HSN nomenclature is standardised and accepted all throughout the world makes it clear how important it is. Given the standard classification of items, this further augments international trade. Because the HSN code is internationally acknowledged the first 6 characters are identical in every nation.
In addition, the HS code has also been updated to provide additional numbers. India also uses 4, 6, 8 digit classification, while the United States uses the HTS code known as Harmonised Tariff Scheme with 10-digit classifications.
Why Is HSN Code Important Under GST (Goods and Services Tax)?
The HSN Code enables GST to become acceptable on a global market and is systematic. Moreover, these codes also provide valuable applications for GST in terms they are helpful to the customer agent. By using HSN codes you are not required to list all goods that are subject to GST. The system also allows tax authorities to automate GST return filings for tax purposes, reducing the time spent on taxes.
If a dealer or service provider’s turnover falls between the slabs mentioned in this article, he or she must include an HSN/SAC-by-SAC summary of sales in his GSTR-1.
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Understanding HSN code meaning in India
India has been a member of the World Customs Organization (WCO) since 1971, and since 1986, Customs and Central Excise have classified items using the 6-digit HSN Codes. Later, two more numbers were added to the codes to aid in product differentiation. The introduction of GST (Goods and Services Tax) in India has led to the adoption of HSN codes under a three-tiered system, which provides a clear framework for businesses to classify their goods.
- Businesses having turnover < Rs. 1.5 crores are exempt from using the HSN code.
- Businesses having turnover > Rs. 1.5 crores and < Rs. 5 crores are required to use two-digit HSN codes.
- Businesses having turnover > Rs. 5 crores are required to use four-digit HSN codes.
- The eight-digit HSN code is mandatory for businesses engaged in the import and export of commodities.
The three-tiered system ensures that businesses of different sizes can mention HSN codes in a manner that is appropriate for their scale of operations. The adoption of the HSN system under the GST regime has made it easier for businesses to comply with regulations related to the classification and taxation of goods.
How does HSN code work?
HSN code system encompasses more than 5000 products. It organises them in a rational and logical order. The HSN code system is acknowledged all around the globe to have a uniform classification of products.
HSN classification is frequently used for taxation purposes and It may also be applied to computations involving benefit with input tax credit claims.
But it also applies to imports and exports, so that’s not all. The HSN code assists in calculating the total number of goods imported or traded via a country.
What Is The Meaning Of 8 Digit HSN Code Or What Is The Structure Of HSN Code?
The HSN code contains 21 parts divided into 99 chapters each with a specific type of product. This chapter can be further divided into 1244 headings and 5224 sub-headings.
The main categories of goods are described in chapters, while the specifics of each commodity are explained in headings and subheadings.
Let’s consider an example to better understand the HSN code system:
HSN- 52.09.41 refers to Plain woven fabrics of cotton. Here,
Here, 52 is the chapter number, 09 is the heading and 41 is the sub-heading.
In India, this code will have two more digits at the end. Let’s say 52.09.41.30, here, 30 is for a clearer classification of the tariff item.
How Can You Find HSN Codes for a Product?
Step 1: Visit the GST website’s official home page. Choose the ‘User Service’ option under the ‘Services’ page, followed by the ‘Search HSN Code’ option.
Step 2: You can use the chapter number or the product description to find the HSN code.
Step 3: If you are unsure of the chapter, Choose ‘Description’ and then either ‘Goods’ or ‘Services’
Step 4: Now choose your description. HSN code will appear on the screen and you can it as an excel sheet.
HSN Code List
Here is the concise list of HSN codes divided into various sections:
| Sections | HSN Code List For |
|---|---|
| Section 1 | Live Animals, Animal Products |
| Section 2 | Vegetable Products |
| Section 3 | Animal or Vegetable Fats and Oils and their cleavage products, prepared edible fats; Animal or Vegetable waxes |
| Section 4 | Prepared Foodstuffs, Tobacco and Manufactured Tobacco SubstitutesBeverages, Spirits and Vinegar |
| Section 5 | Mineral Products |
| Section 6 | Product of chemicals or allied Industries |
| Section 7 | Plastics and articles thereof; Rubber and articles thereof |
| Section 8 | Raw hides and skins, Leather, Furskins and articles thereof; saddlery and harness, travel goods, handbags, and similar containers; articles of animal gut (other than silk-worm gut) |
| Section 9 | Wood and articles of wood, Wood charcoal, Cork and articles of cork; Manufacturers of straw, of Esparto or of other Plaiting Materials, Basketwork and Wickerwork |
| Section 10 | Pulp of wood or of other Fibrous Cellulosic Material, Recovered (Waste and scrap) paper or paperboard, paper and paperboard and articles thereof |
| Section 11 | Textile and textile articles |
| Section 12 | Footwear, Headgear, Umbrellas, Sun Umbrellas, Walking-sticks, seat-sticks, whips, riding-crops and parts thereof; Prepared feathers and articles made therewith; Artificial flowers; Articles of human hair |
| Section 13 | Articles of stone, plaster, cement, asbestos, mica, or similar materials, ceramic products, glass, and glassware |
| Section 14 | Natural or cultured pearls,precious metals, Precious or semi-precious stones; Metal clad with precious metal, and articles thereof; Imitation Jewellery, Coins |
| Section 15 | Base Metals and articles of Base Metal |
| Section 16 | Machinery and mechanical appliances, electrical equipment, parts thereof, sound recorders and reproducers, television image and souch recorders and reproducers, and Parts and Accessories of such article |
| Section 17 | Vehicles, Aircraft, Vessels and Associated Transport Equipment |
| Section 18 | Optical, Photographic, Cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; clocks and watches; musical instruments, parts and accessories thereof |
| Section 19 | Arms and ammunition, parts and accessories thereof |
| Section 20 | Miscellaneous Manufactured Articles |
| Section 21 | Works of art, Collectors’ Pieces, and antiques |
Difference between HSN (Harmonized System Nomenclature Code) Code and SAC (Services Accounting Code)
Harmonised System Number Code (HSN Code) is the standard for the classification of products in GST. This code was approved for use within the World Customs Organisation. Whereas Services accounting code (SAC) are used to categorize services under GST. The codes were commissioned by the Central Excisement and Customs (CBA).
Let’s see an example to understand SAC code better:
995411 is a SAC code for general construction services. Here
99 – the first two digits are the same for all services.
54- the next 2 digits refer to the major nature of service (construction service in this case).
11- the last two digits refer to the detailed nature of service (multi-storied residential buildings, single dwellings, or multi-dwelling in this case)
As a whole, this 6-digit code represents the SAC code for legal documentation concerning copyrights, patents, and other intellectual properties.
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Conclusion
HSN code has proved to be an essential tool in tax collection and customs administration. Its introduction in the GST system has brought it in line with global standards, resulting in increased recognition in the international market.
The HSN code has played a significant role in bringing uniformity and systematization to the entire tax process. It has also resulted in time-saving as there is no need to provide a detailed product description.
With the application of the HSN code, the tax procedure has become automated and simplified, making it easier for businesses to comply with tax regulations. Overall, the HSN code has had a positive impact on the Indian economy, making the tax system more efficient and effective.
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FAQs
What is HSN code full form?
HSN code stands for Harmonized System Number Code.
What is HSN code in India code example?
To help with identifying products, the Indian government used eight-digit codes to improve the classification. Examples are 72.02. 95.11 was a HSN code for ferrophosphorus under ferro-alloys.
What is the difference between an HSN code and a SAC code?
SAC codes are used for services, while HSN codes are used to categorise products.
Who is eligible for HSN code in GST?
In line with CGST announcement 78/2020 dated October 15, 2020, HSN codes shall be declared in the following ways starting on April 1, 2021:
| Business turnover | No. of digits of HSN |
| < Rs. 1.5 crores | 0 |
| > Rs. 1.5 crores and < Rs. 5 crores | 4 |
| > Rs. 5 crores | 6 |
Why is HSN code required?
While the primary objective of HSN codes is the systematic classification of products, they may also assist in gathering data and solving problems otherwise unattainable. Eventually this will lead to a much efficient global commerce system.
What is HSN used for in GST?
HSN is a Harmonised System Nomenclature used by businesses to categorize goods in systematic terms. This is an international standard for goods names that has a global impact.
Is HSN code mandatory?
In accordance to the CGST notification 78/2020 dated October 15, 2020, GST HSN codes must be mandatorily stated on B2C invoices, while they are required for taxpayers with a turnover of up to Rs. 5 crore on B2B invoices.
Where are HSN codes required to be mentioned?
HSN codes must be provided in the GSTR-1 return as well as on invoices and bills of supply.
How do I find the HSN code for a product?
Visit the GST Portal home page. Select ‘User Service’ under the ‘Services’ page, then ‘Search HSN Code’. Use chapter number or the product description. HSN code will appear on the screen.
