What Is an HSN GST Code? An Insider’s Look at the HSN Code and Its Role in India’s GST

Trading has expanded throughout time from local marketplace to and beyond national boundaries. Nowadays, the world is a marketplace, with merchants reaching out to make their products and services accessible to every corner of the globe. Nevertheless, standardising products and services were critical to continue commerce on a large scale.

The GST system, implemented in 2017, is based on the usage of HSN Numbers, Service Accounting Codes, and Unique Quantity Codes.

What is the HSN code?

Devised by the World Customs Organisation (WCO), Harmonised System of Nomenclature is the HSN Code full form. The primary goal of the WCO in adopting HSN codes is to systematically categorise commodities.

This helps to clear up any misunderstandings and facilitates internal and international commerce between the nations. Using HSN numbers, more than 20,000 different products are exchanged across the world.

WCO has 181 members, and developing nations make up three-quarters of those members. These emerging economies are responsible for processing more than 98 percent of all international trade. The classification of items sold on HSN adheres to a predetermined structure that divides the content into sections, chapters, headers, and subheadings for each product category. Consequently, a commodity’s six-digit code is generated (two digits each depicting the chapter, heading, and subheading).

HSN in India

Since 1986, India, a WCO member since 1971, has used the 6-digit HSN code list to categorise items for Customs and Central Excise. It is used to order goods for Customs and Central Excise using 6-digit HSN codes. The categorisation was expanded to eight digits when Customs and Central Excise appended two more digits to each number to make them more precise. It is required for both B2B and B2C tax bills on Goods and Services supplied.

Know your HSN Code

The HSN structure has 21 divisions, 99 chapters, 1,244 headings, and 5,224 subheadings. Headings and subheadings are used to identify individual products, whereas the titles of divisions and chapters refer to more general categories of goods.

This method contributes to the simplification and universal acceptance of GST. HSN codes of six digits are generally used for items. Customs and GST use the same HSN codes. For GST reasons, principles established in the Customs tariff are applied. HS codes are regulated in Customs Tariff as heading – four digits HS, subheading – six digits HS, and tariff items – eight digits HS.

Example:

Almost all commodities in commerce are covered.

Powdered Nylon Moulding (HSN Code: 39 08 90 10)

The first two numbers (39) represent the HSN code chapter.

The following two numbers (08) represent the chapter headers.

The following two numbers (90) identify the sub-headings.

The next two digits (10) are a subclassification of the product’s tariff heading when imported or exported.

In what contexts do we make use of the codes?

Additionally, several services are categorised consistently for identification, assessment, and taxes. SAC stands for Services Accounting Code and refers to the codes used for services. The HSN code is necessary for everything from footwear, weaponry and ammunition, and equipment to animal products, mineral goods, and objects made of plastic for retail business and hotel services.

HSN in GST

Manufacturers, importers, and exporters use the HSN code list under GST. Traders use HSN codes from manufacturer or importer invoices.

All commodities traded in India under GST are categorised by the HSN code list under GST and assigned a GST rate. GST rates are divided into five categories: 0%, 5%, 12%, 18%, and 28%.

The criteria for mentioning HSN codes in invoice w.e.f. 1st April 2021 is as follows:

HSN Code and its role in India’s GST

• Up to 200 different nations use the HSN code for retail business, HSN code for hotel services, and all other businesses. It is essential to India’s Goods and Services Tax (GST).
• The HSN codes serve as the foundation for tariffs imposed by Customs.
• It is a standard method of categorisation that is recognised worldwide.
• HSN codes are assigned to each commodity, and these codes are consistent over practically the whole product range. HSN codes are used in every country.
• It offers a standardised, international framework for classifying commodities for customs and central excise.
• It provides a standardised framework for taxes all across the world.
• Facilitates international trade and commerce to an increased degree.
• It is also utilised in filing taxes, invoices, and other documents.
• Purchases made by registered businesses for GST might result in considerable financial benefits.
• Using an HSN code considerably lowers the likelihood that mistakes will be made during interstate trading.

Conclusion

Alongside the transition to GST, India is also moving toward an online taxation system and HSN codes to classify commodities for taxes. All of this is being done to achieve more equal taxes and more simplicity in doing business. Instead of textual explanations, HSN codes will be utilised when filing returns, on invoices, and in similar contexts.

Automatic GST compliance options are available to simplify the transition, but it will take some preparation work from both experts and taxpayers. Apply for MSME business loans in India with Flexiloans and boost your operations.

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