December 26, 2022

HSN Codes: Detail Study

"Harmonized System of Nomenclature" is abbreviated as HSN code. This method has been established to allow for the global, systematic classification of commodities. A 6-digit universal identifier called the HSN code, which categorises more than 5000 products, is used all across the world. The World Customs Organization (WCO) created it, and it went into operation in 1988. A 6-digit universal identifier called the HSN code, which categories more than 5000 products, is used all across the world. They are used for the classification of commodities under various sections, chapters, headings, and sub-headings that belong to nature. The 5,000 commodity groups, each identified by a six-digit code, arranged in a legal and logical structure. It is supported by well-defined rules to achieve uniform classification.

For example, if you are selling fresh bananas, you can find your HSN code under Section 02: Vegetable Products, Chapter 08: Edible fruits and nuts; peel of citrus fruits or melons, Heading 03: Bananas including Plantains, Subheading 9010: Bananas, fresh. Your HSN code will be 0803. HSN's principal goal is to logically and systematically categories products from all over the world. This improves international trade by bringing about a standard classification of items.

Implication of HSN Worldwide

More than 200 nations and economies use the HSN system for a variety of factors, including:

Base categorization for their customs tariffs that is consistent gathering of data on international trade.

The HSN is used to categorise almost 98 percent of the goods traded internationally.

Most nations accept the Harmonized System of Nomenclature number for each commodity. For practically all products, the HSN number stays the same. However, depending on the type of commodities categorised, the HSN number used in some of the countries varies just slightly.

Implication of HSN in India

Since 1971, India has belonged to the World Customs Organization (WCO). India has been using HSN codes since 1986 to classify commodities for Customs and Central Excise. HSN codes apply to Customs and GST. The codes prescribed in the Customs tariff are used for the GST purposes too. Commodities were previously categorised for Customs and Central Excise using 6-digit HSN codes. Later, two more digits were added by Customs and Central Excise to make the numbers more exact, creating an 8 digit categorization. Shirt made of Textile matters 62.13.90

1. First two digits (62) represent the chapter number for Articles of apparel and clothing accessories, not knitted or crocheted.

2. Next two digits (13) represent the heading number for the shirt.

3. Finally, the last two digits (90) is the product code for shirts made of other textile materials.

India has 2 more digits for a deeper classification. If the shirts are made from a man-made fiber, then the HSN code is

Structure of HSN code in India

HSN Code

Importance of HSN Under GST

HSN codes are used to make GST standardised and widely recognised.

HSN codes will eliminate the requirement to supply a thorough product description. Considering that GST returns are computerised, this will save time and make filing simpler.

If a dealer or service provider's turnover falls under the aforementioned slabs, he or she must submit an HSN/SAC-wise summary of sales in his GSTR-1.

Who Needs HSN Code?

HSN codes have been utilised by manufacturers, importers, and exporters for a very long period. Even before the introduction of the GST, manufacturers were providing these codes. These codes have been provided by importers and exporters in their import and export documents. The majority of the time, traders will use the HSN codes included in the invoices that manufacturers or importer suppliers send to them. Dealers that do business with less than Rs 1.5 crore in annual sales are exempt from using HSN codes for their products. Two-digit HSN codes are used by companies with annual revenue between Rs 1.5 crore and Rs 5 crore for their commodities.

Where are the HSN Codes Used

Additionally, different services are uniformly categorised for taxes, measurement, and recognition. Services Accounting Code, or SAC, is the name given to service-related codes. All products, including those made of animals, minerals, or plastic, as well as machinery, footwear, weapons, and ammo, must have an HSN code.

To categorise each service under GST, the Central Board of Indirect Taxes and Customs (CBIC) has published this. Every service has a different SAC. You can use these SAC codes when creating invoices for the services you provided. Under the GST system, products and services are categorised using HSN and SAC codes.

HSN Code on GST Portal

GST taxpayers were obliged to give a 6-digit HSN code if their prior fiscal year earnings exceeded Rs. 5 crore (Harmonization System of labelling code). It becomes effective on April 1.

The SAC on the invoice for the supply of taxable goods and services is affected by this. A 4-digit HSN number must be provided on the B2B invoice by taxpayers with a revenue of up to Rs 5 crore in the preceding fiscal year. Previously, the requirements were 4 and 2, respectively.

All 6-digit goods have universal HSN codes. Therefore, GST and customs both use standard HSN codes. As a result, the codes suggested in the tariff are also utilised for GST. The HS code is advised as the title for customs fees (4 digits HS), Sub-title (6 digit HS), and tariff items (8 digits).


Read More: HSN Code importance, Letter of credit, National Technical Textile.

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