By Team TranZact | Posted on February 28, 2023
HSN stands for Harmonized System of Nomenclature. Developed by the World Customs Organization (WCO), the HSN code is a global standard for classifying goods. If you want to learn more about what an HSN code is, continue reading this article.
How does the HSN code work?
Introduced in 1988, the HSN code is a global code used to classify goods worldwide. It is a globally recognized, uniform 6-digit code that classifies more than 5,000 products.
The HSN code is used by more than 5,000 product groups - each of which is identified by a unique 6-digit code. The HSN code system is used in over 200 countries (including India) for the following reasons:
- For a uniform product classification
- To calculate a custom rate
- To collect the latest international trade statistics
According to the World Customs Organization (WCO).98% of international tradeThe goods are classified using the HSN code. The HSN code is based on clearly defined rules for the uniform classification of products.
The HSN number is often used for tax purposes. It makes sense to indicate the tax rate for a specific product in each country. Entrepreneurs can also use the HSN code to calculate their tax credits. In addition, this code will help determine the volume of imported and exported products in any country.
How does the HSN code work in India? India has been a member of the WCO since 1971. Before the introduction of GST, the HSN code was used to classify goods for customs and central excise duties. The Indian Excise initially started with six codes and then added two digits to form an eight-digit HSN code.
Next, let's discuss the meaning of the HSN code.
The meaning of the HSN code
The HSN code means a unified classification of industrial goods in different countries. The purpose of the HSN code is to categorize all commodities worldwide in a systematic and logical structure. This is important to facilitate international trade. Currently this code is used in more than 190 countries.
According to the international encryption standard, the first six digits of the HSN code are the same in all countries. Each country added more digits to its HSN code for further classification. For example, India supports 4, 6, and 8 digit classifications while the US uses a 10 digit HSN code.
In addition, the HSN code for each product exists in all WCO member states. The HSN number is the same for all goods in different countries. Depending on the type of goods classified, HSNs may vary in selected countries.
In the next section, we discuss the list of HSN codes with GST rate.
The HSN code list consists of 21 parts or sections - along with 99 chapters, 1244 headings and 5224 subheadings. Each section is a product category based on technical and industry advancement. Below is a list of the 21 sections:
|section number||HSN code list for:|
|1||Live and animal products|
|3||Animal/vegetable fats and oils, chemical breakdown products, edible fat products, animal/vegetable waxes|
|4||Prepared meals, beverages, spirits, vinegar, tobacco and tobacco substitutes|
|6||Chemical products or products from related industries|
|7||Plastics (and articles made of them) and rubber (and articles made of them)|
|8||Raw skins, hides, leather, furskins, saddlery and harness, traveling goods, handbags and similar goods, articles of gut (other than silkworm gut)|
|9||Wood (and wood products), charcoal, cork (and cork products), manufacturers of straw, esparto and wickerwork, wickerwork and wickerwork|
|10||Pulp, cellulosic fibrous material, waste and waste paper or cardboard, and paper or cardboard articles|
|11||textiles and textile articles|
|12||shoes, headgear, umbrellas, parasols, walking sticks, perches, whips, riding crops (and parts thereof), prepared feathers and goods made therefrom, artificial flowers and goods made from human hair|
|13||Articles made of glass, glassware, stone, plaster, cement, mica or similar materials, asbestos, earthenware|
|14||Natural pearls (or cultured pearls), precious (or semi-precious) stones, precious metals, metals coated with precious metals, artificial jewelry and coins|
|15||Base metals and articles made from base metals|
|16||machines and mechanical devices, electrical devices, sound recorders and players, television pictures and parts and accessories for such items|
|17||Vehicles, aircraft, ships and associated means of transport|
|18||Cinematographic, optical, photographic, measuring, testing, precision, medical (or surgical) instruments and apparatus, clocks, musical instruments, parts and fittings therefor|
|19||Weapons and ammunition, parts and accessories|
|21||Artwork, collectibles and antique products|
When making a GST declaration, you need to know the list of HSN codes to determine the code of the product being manufactured.
Don't understand how the HSN code list works? Let's explain this with an example in the next section.
Understand the HSN code with an example
In the previous section, we looked at 21 sections of the HSN code. These sections are further divided into 99 chapters. Each chapter is divided into headings and each heading into subheadings. In total there are 1,244 headings and 5,224 subheadings.
Each section and chapter is used to specify products and product categories. For example, Section 11 applies to textile articles, while Chapter 52 (in this section) applies to cotton articles. Each article and subheading is used to specify the type of raw material or product in detail.
Here is the structure of each HSN code:
Here is an example HSN code: 62.13.90 where:
- The first digit (62) is the chapter number for all clothing items and accessories.
- The next number (13) is the main number of the handkerchiefs.
- The last digit (90) is the subcategory (or product code) of handkerchiefs made of other textile materials.
In India, the HSN code is structured as follows:
For example 126.96.36.199, where 10 is the tariff number for handkerchiefs made of synthetic materials.
This is the structure of the HSN code. Next, let us discuss how the HSN code is required for the GST in India.
Since 1971, India has used the six-digit HSN code to classify goods for customs and central excise purposes. With the introduction of the GST, India made the use of HSN codes mandatory for businesses.
Here is how HSN codes apply to Indian companies:
- Businesses with a turnover of less than 1.5 crore are not required to use HSN codes.
- Businesses with a turnover of ₹1.5 to 5 crore must use a two-digit HSN code.
- Businesses with a turnover of more than 5 crore must use a 4-digit HSN code.
- International import and export companies must use an 8-digit HSN code.
The use of HSN code in India signifies worldwide acceptance of GST regulations. The HSN code eliminates the need for GST-registered members to manually enter commodity-related information when filing their GST returns.
Another important element of this topic is understanding the importance of the HSN code for GST registration. Let's discuss this in the next section.
Meaning of HSN within the GST
From April 1, 2021 it is mandatory to provide HSN codes for GST purposes. This is why the HSN code is important for GST:
|transaction amount||Type of invoice document||The number of digits of the HSN code to declare|
|Less and £5 crore||B2B VAT invoice (required)||4|
|B2C VAT invoice (optional)||4|
|More than 5 crores ₹||All invoices (required)||6|
Therefore, GST taxpayers must include the HSN code on every tax invoice they issue. For GST imports and exports, taxpayers must provide all 8 digits of their HSN code.
With the introduction of HSN codes, GST registered members no longer need to submit information about their goods. This simplifies the submission of sales tax returns and saves time. Dealers and service providers with annual sales (in the tables above) are required to provide a summary of HSN sales on Form GSTR-1.
Find HSN code with HSN code finder
If you don't know the HSN code for your specific item, you can use the HSN code lookup tool. You can search for product names in the HSN code finder. Alternatively, you can use the HSN code GST rate finder to calculate the GST rate based on the HSN code.
Search by product name:
- Enter the product name in the HSN code finder. Based on your search, you'll receive recommendations with the most relevant HSN code.
- Click on the appropriate item to get the 6 or 8 digit HSN code and the applicable GST rate.
Search by HSN code:
- Enter the first 2 or 4 digits of the HSN code in the HSN code finder.
- Click on the appropriate item for more information on the HSN code and applicable GST rates.
What is the difference between HSN and SAC codes? Let's discuss this further.
Difference between HSN code and SAC code
SAC is an acronym for Service Accounting Code and is issued by the Central Board of Indirect Taxes and Customs (CBIC) of India. Both SAC and HSN codes are used to classify goods and services in the GST system. The SAC is used to classify services and each service is assigned a unique SAC.
SAC is used by service providers on invoices for services rendered. Each SAC starts with the number 99. The next two digits indicate the main services (e.g. legal services). The last two digits of the NSA indicate the details of the service provided (e.g. legal documentation for a patent application).
Based on the above SAC, the GST rates apply to five license plates: 0%, 5%, 12%, 18% and 28%. For services without a specified GST or SAC rate, the standard GST rate of 18% applies.
Make sure your business is HSN code compliant
Using the Universal HSN Code and HSN Finder makes it much easier for taxpayers to file GST returns in India. Thanks to this article, we learned important information about how to use the HSN code. If you need an expert to provide you with GST compliant billing and documentation information, the TranZact team can help. Contact them today.
frequently asked Questions
1. What is the HSN code in India?
The HSN code, which stands for Harmonized System of Nomenclature, is used to classify goods. India uses an 8 digit HSN code which is required for GST purposes.
2. Is the HSN code mandatory?
In India, HSN code verification is mandatory for all B2B invoices issued by companies with an annual turnover of more than 5 crore. The HSN code is optional for B2C invoices.
3. What is SAC?
The full form of SAC in GST is Service Accounting Code. SAC is used to classify different services based on a unique number. Each SAC begins with the number 99.