VonGoods and Services Tax(GST), which introduced tax reform, left businesses large and small feeling overwhelmed and confused.
Most Indian entrepreneurs have no idea what the reason is. The new Tax Act introduced entirely new laws and regulations that must be complied with. It consists of many factors that vary by company and even industry.
One of them is the HSN code.
If you are wondering what the HSN code is, it is a system designed to systematically classify goods in a country or in the world. TheHarmonized system of nomenclatureis the full name of this system. This is a six-digit code that categorizes and classifies more than 5,000 different items. It is worth noting that the codes are recognized around the world. The World Customs Organization (WCO) developed codes that came into force in 1988.
Around 5,000 product categories are identified with this six-digit code. To ensure a consistent classification, the codes are organized in a logical and legal framework, supported by clearly defined regulations.
What does the HSN code mean?
HSN code is fairly easy to learn, no matter how complicated it may seem.
HSN is a global coding system for assigning codes to articles and goods. It is a globally recognized coding system that allows a worldwide classification of articles.
Each country or continent has its own set of trade management policy standards, followed by their nomenclature. When people are not well acquainted with the codes of both parties, it creates confusion across the continent.
A basic product/item such as lentils can be classified as both food and seed. It can vary by culture and type of use.
HSN wants to make life easier; uses a six-digit hierarchy-based code to standardize these different forms (4 to 8 digits, usually 6).
What does the HSN code mean?
Many business owners have no idea what an HSN code is, so they search for it online. The main purpose of HSN codes is the logical and systematic organization and classification of goods. This helps to standardize the classification of products and services in international trade.
GST-HSN codes are used to classify over 98% of items in over 200 countries for the following reasons:
- Consistent classification
- Custom rate base
- International trade statistics (collection)
The HSN code is a generally accepted logical representation of an item.
For example, a US business owner may not understand what you mean when you say "dhoop" or "agarbatti", but can easily try to search 3307 41 00 to find out the usual meaning, which in this case is "incense". is.
Most countries use HSN codes for services and products, and almost all products/goods have the same HSN codes. However, the list of HSN codes in different countries varies depending on the type of products listed.
HSN in India
After the introduction of well-researched tax changes, the GST Act, the HSN code was officially fully adopted in India.
However, since India has been a member of the WCO since 1971, the Central Excise and Customs System has applied it since its inception (1988).
The government has used the HSN system for GST in a number of ways. The codes were originally six-digit codes used by customs and central excise offices to classify products and commodities. The government added two more digits to the code to allow for another classification specific to the needs of the products at that location. The WCO has endorsed this approach as a standard. As a result, the codes were changed to eight digits.
Only companies involved in international trade (export and import) need to use the eight-digit HSN code.
For the government, this means a clear distinction between activities and products, making taxation an easy process. According to the government, the HSN code must be clearly stated on every GST invoice.
The HSN code puts all Indian traders on an equal footing with the rest of the world and ensures smooth foreign transactions and the exchange of products or services.
Understand the mechanism behind the code
The HSN code consists of several elements. Therefore, take careful notes as you read this section. This enables you to determine whether the HSN codes apply to the products you offer.
HSN codes are structured as follows:
The code consists of 21 sections, 99 chapters, 1244 headings and 5224 subheadings.
- Each of the 21 departments is divided into chapters.
- Each chapter also has headings.
- The headings are further divided into subheadings.
The general categories of goods are described in section and chapter headings. In addition, the headings and subdivisions contain detailed information about the goods and products.
Let's start with an example HSN code for herbal products from Section 2: 1006.30.
The most common classification level is section, in this case for herbal products.
The chapter is represented by the first two digits of the code. In the HSN code, chapter is the second largest classification in terms of hierarchy. In this case it is number 10, the chapter on grain.
As you may know, breakfast cereals come in all shapes and sizes. Wheat, barley, rice and other cereals are available. According to Chapter 10, the next two digits indicate the subdivision (06 in this case) that represents rice.
Basmati rice, polished rice, brown rice and brown rice are different types of rice. Indicates that the two digits after the period (.) are used.
The number 30 refers to rice, polished or unpolished, that has been partially or fully milled.
So if you give someone the HSN 1006.30, they'll know it's that specific type of rice.
Likewise, the HSN code for cloth towels is 62.13.90, where:
- 62: The list section - clothing and clothing - is represented by the number 62.
- 13: The number 13 stands for the cup - handkerchiefs.
- 90: The product code - towels made of textile materials - is displayed with 90.
India, on the other hand, uses two consecutive numbers in its ranking system.
The code is 22.214.171.124 if the handkerchief was made from silk or silk waste.
If the handkerchief is made of synthetic fibers, the code is 126.96.36.199.
GST and HSN
With the GST Act, the Indian government wants to convert trade tax into a digital, automated system. The HSN code is part of a government initiative to ensure goods are properly taxed in the country.
With this in mind, it is particularly beneficial to require the HSN code to be included on every invoice issued for GST purposes. This usually makes tax returns quick, efficient and easy.
Additionally, HSN codes help make them well known in a country like India where tax fraud is rampant and the percentage of tax payers is low.
The government also wants to include locally produced goods and sell them worldwide.
For example, handkerchiefs can be classified according to the eight-digit HSN code in all their varieties such as silk, synthetic fibers and silk waste. This requires the application of the general principles of interpretation.
However, everything that a country has to offer in terms of goods and services enjoys international recognition.
The HSN codes to be provided based on company turnover are as follows:
The number of digits of the HSN code to declare
Doe 1,5 crore INR
From 1.5 to 5 crores INR
Suppose the INR is 5 crores
In particular, HSN codes must be included on all GST invoices. The sales of the previous year are taken into account.
Steps to find your HSN code
Google is the fastest and most effective way to check a product's HSN code. However, you can follow these steps:
- Go to the "Services" menu on the official GST website:https://www.gst.gov.in/Then click on “User Services”.
- Keep this in mind to get the desired effectClickunder "User Services" instead of enabling or disabling them.
- After clicking, a new page will appear where you will see the option to "Find HSN/Service Classification Code".
- If you already have an HSN code and want to learn more about a service or product, click here.
- To find the HSN code for a specific product or service, click on the service classification code.
- Both options require you to specify a tax category from IGST, CGST, SGST and CESS.
- After entering the information, a small captcha will appear; Answer and click Search. That's all!
Contractual obligations and regulatory compliance are very strict in trade between two parties, including two countries, and there are many rules to follow.
In this situation, the harmonized system of nomenclature (HSN codes) is used to ensure there is no ambiguity in trade. The main purpose of HSN codes is to make the GST system more systematic and widely accepted. Thanks to the codes, you no longer have to fill out the tax document with the exact description of the products. This saves time and effort for the business owner and makes it easier to process returns.
1)10 proven tips on how to increase your company's profit margin
2)Tips for securing a business loan with bad credit
3)Tips to prepare your business for seasonal sales
4)The Psychology of Color: How Can Color Affect Branding and Marketing?
Stay up to date on new business ideas and business tips with OkCredit blogs in English, Hindi, Malayalam, Marathi and more!
Download OkCredit Nuand save yourself the hassle of bookkeeping.
OkCredit is 100% made in India.
frequently asked Questions
Q. What does the HSN code mean?
Answer The first six digits of the HSN code are the same in all countries because it is a globally recognized standard. However, to improve classification, countries have added more digits to their HS code systems. For example, in India we have a four, six and eight digit rating system.
Q. Why do I need or use an HSN code?
Answer The HSN code is a useful way of identifying goods in both domestic and international trade as it is an internationally recognized standard for product classification. It can be used to collect data and better understand international and domestic trade both inside and outside the country. This will help the government formulate macroeconomic policies for trading specific commodities.
Q. Who is the provider of the HSN code?
Answer The DGFT (Directorate General for Foreign Trade) is responsible for any changes, formulations or additions to the HSN codes. As part of ongoing efforts to improve HSN codes, changes are made to product descriptions, removal of codes that are not present, insertion of new codes, and so on, on a regular basis.
Q. Is the HSN code mandatory?
Answer ITC HS codes are mandatory for export. The eight-digit HSN code must be included on the bill of lading; Otherwise the export incentives will be lost. This applies to companies with a turnover of less than 500,000. 1.5 crores or if the merchant is registered under the GST Composition Scheme, HSN codes are not required.
Q. What if the HSN code provided is invalid?
Answer If you, as an exporter, use an incorrect HSN code, it can lead to complications at customs control. Among other things, import duties can be refused, high tariffs can be imposed and fines can be imposed for non-compliance. If you use an incorrect HSN code for the GST, the buyer cannot claim a deduction.
Q. What is the difference between the HSN code and the SAC code?
Answer: Goods are classified using HSN codes (Harmonized System of Nomenclature) while services are classified using SAC codes (Service Account Codes).