What is HSN Code? What is the use of an HSN Code under the GST?

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HSN, which is the acronym for Harmonised System of Nomenclature, was introduced to systematically classify goods all over the world. HSN is a six-digit globally accepted code that classifies over 5,000 products. Developed by the World Customs Organisation, it came into effect in 1988. 

The HSN Code has over 5,000 commodity groups that are identified by a six-digit code arranged in a logical and streamlined structure. This coding is defined by a well-structured set of rules that ensure uniform classification. 

The idea behind the HSN Code is to classify goods from across the globe in a systematic and logical manner. By doing this, nations bring in a uniform method to classify goods, thereby facilitating international trade.

 

There are three main reasons over 200 nations from across the world employ the HSN Code. These include:

  • Collecting international trade statistics

  • Having a base for custom tariffs

  • A method to uniformly classify goods

 

Thanks to the uniformity in coding various goods and services, over 98% of merchandise in international trade is classified in terms of the HSN Code.

The HSN Code for each commodity is globally accepted, as it remains the same for almost all goods. However, some nations employ a slightly altered version of the HSN Code based on the nature of goods.

HSN Code in India:

India has been part of the World Customs Organisation since 1971, and used the six-digit HSN Code to classify goods and commodities for the Central Excise and Customs Department. However, since the advent of Goods and Service Tax (GST), the HSN Code is now an eight-digit code when it comes to the import and export of goods.

Incidentally, those filing GST can file two-digit, four-digit, or eight-digit HSN Codes depending on the following:

  • If an individual or a company makes an annual turnover of Rs 1.5 crore or less, then HSN Codes need not be provided 

  • In case the individual or a company makes an annual turnover between Rs 1.5 crore and Rs 5 crore, then a two-digit HSN Code is provided

  • In case the individual or company makes and annual turnover of Rs 5 crore or over, then a four-digit HSN Code is provided

  • In case the individual or company imports or exports goods, then an eight-digit HSN Code is provided

These HSN Codes must be declared in every tax invoice issued by the taxpayer under GST. Furthermore, the turnover for the previous year will be considered as a basis to find out the number of HSN digits – if you’re not importing or exporting goods – to be used. 

In India, the HSN structure comprises 21 sections with 99 chapters, 1,244 headings, and 5,224 subheadings.

  • Each section is divided into chapters, and chapters are divided into headings. Headings are further divided into subheadings

  • Section and chapter titles describe a broad category of goods, while headings and subheadings describe products in detail. 

The reason India has an eight-digit HSN Codes for import and export of goods, is for a deep classification.

Taking the example of a handkerchief, the HSN Code is 62.13.90.10, but 62.13.90.90 when the handkerchief is made from silk or waste from silk.

Individuals and organisations with a GST number must mandatorily file GST returns every month, quarter, and year, depending on the business and turnover. With the HSN Codes, it makes it easy to identify the product in detail. 

Besides this, HSN Codes provides a uniform, logical structure, thereby avoiding any misinterpretation, and makes GST compliant with international standards.

With Vakilsearch’s HSN finder you can find the code of your product easily. All you need to do is just enter the name of the product and click “Search”. The HSN code list with GST rate, Description of the product and the related codes will be displayed.

The idea of incorporating HSN Codes while filing GST is to make GST filing more systematic, and a globally accepted method of paying tax.

HSN Codes aim to remove the need to upload the detailed description of goods. This will ensure that GST filing is simple, as the entire filing of GST returns is automated.  

A dealer or a service provider must provide HSN/SAC wise summary of sales in his GSTR-1 if his turnover falls in above slabs.

 

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