HSN CODE: Concept of HSN Codes Under GST

The HSN Code or the Harmonized System of Nomenclature code is a globally recognized coding system that is used to classify goods and services. It was developed by the World Customs Organization (WCO) in order to standardize the classification of goods and services for international trade. It is a six-digit code that is used to identify the goods and services that are being traded.

Concept of HSN Codes under GST

With the introduction of the Goods and Services Tax (GST) in India, the HSN Code system has become all the more relevant. Under the GST regime, businesses are required to provide the HSN Code for each of the goods and services that they sell or purchase. This is mandatory for businesses whose annual turnover exceeds INR 1.5 crore.

The HSN Code serves as a means of identifying the goods and services that are being traded, and thereby helps in the accurate determination of the tax liability. The GST rate for each of the goods and services is determined based on the HSN Code, which makes it all the more important for businesses to provide the correct HSN Code while filing their GST returns.

Structure of HSN Codes

The HSN Code is a six-digit code that is further classified into different categories and sub-categories. The first two digits of the HSN Code represent the chapter under which the goods or services are classified. The next two digits represent the heading under the chapter, and the final two digits represent the product or service classification under the heading.

For example, let’s consider the HSN Code for “Books”. The HSN Code for books is 4901. The first two digits, “49”, represent the chapter for Printed Books, Brochures, Leaflets and Similar Printed Matter. The next two digits, “01”, represent the heading for Printed books, brochures, leaflets and similar printed matter. The final two digits, “00”, represent the product classification for books.

Benefits of using HSN Codes

The use of HSN Codes has several benefits, especially under the GST regime. Some of the key benefits of using HSN Codes are:

Uniformity: The use of HSN Codes ensures uniformity in the classification of goods and services across different countries.
Accuracy: The use of HSN Codes helps in the accurate determination of the GST liability for each of the goods and services.
Ease of Doing Business: The use of HSN Codes makes it easier for businesses to file their GST returns, as it helps in the correct determination of the GST liability.
Trade Facilitation: The use of HSN Codes helps in the smooth facilitation of trade, as it provides a common platform for the classification of goods and services.

Conclusion

The HSN Code system has emerged as a crucial tool for the classification of goods and services under the GST regime. It helps in the accurate determination of the GST liability for each of the goods and services, thereby making it easier for businesses to file their GST returns. The use of HSN Codes also helps in the smooth facilitation of trade, as it provides a common platform for the classification of goods and services. Therefore, it is important for businesses to ensure that they provide the correct HSN Code for each of the goods and services that they sell or purchase.