The acronym HSN stands for "Harmonized System of Nomenclature." This system has been implemented all over the world for the systematic classification of goods. The HSN code is a 6-digit uniform code that classifies over 5000 products and is recognised globally. The World Customs Organization (WCO) created it, and it went into effect in 1988.
It has approximately 5,000 commodity groups, each of which is identified by a six-digit code and is organised in a legal and logical structure. To achieve uniform classification, it is supported by well-defined rules.
HSN's main goal is to categorize goods from all over the world in a systematic and logical manner. This results in a more consistent classification of goods and facilitates international trade.
More than 200 countries and economies use the HSN system for a variety of reasons, including:
For their Customs tariffs, they use a uniform classification base.
International trade statistics collection
Over 98 per cent of international trade merchandise is classified using the HSN.
Most countries accept the Harmonized System of Nomenclature number for each commodity. Almost all goods have the same HSN number. However, the HSN number used in some countries varies a little depending on the nature of the goods classified.
Since 1971, India has been a member of the World Customs Organization (WCO). It is used to classify commodities for Customs and Central Excise using 6-digit HSN codes. Customs and Central Excise later added two more digits to the codes to make them more precise, resulting in an 8-digit classification.
The HSN structure consists of 21 sections, 99 Chapters, approximately 1,244 headings, and 5,224 subheadings.
Each section is further subdivided into Chapters. Headings are used to dividing each Chapter. Each Heading is further subdivided into Sub Headings.
Section and Chapter titles describe broad categories of goods, whereas headings and subheadings describe specific products.
As an example:
Textile matters handkerchiefs 62.13.90
The first two digits (62) represent the chapter number for non-knitted or crocheted articles of clothing and clothing accessories.
The next two digits (13) represent the handkerchief heading number.
Finally, the last two digits (90) represent the product code for other textile-based handkerchiefs.
India has two more digits for a more detailed classification. If the handkerchiefs are made of synthetic fiber, the HSN code is 220.127.116.11.
The goal of HSN codes is to make GST more systematic and widely accepted.
HSN codes will eliminate the need to upload a detailed product description. Because GST returns are automated, this will save time and make filing easier.
If a dealer or service provider's turnover falls within the above slabs, he must provide an HSN/SAC-by-SAC summary of sales in his GSTR-1.