HSN Codes Explained (Harmonized System Nomenclature)
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The HSN code’s full form is ‘Harmonized System of Nomenclature’. This system is employed across the world to identify traded commodities.
It was developed by the World Customs Organization (WCO) and put into effect in 1988 as a convenient way to classify goods systematically.
This uniform code comprises 6 digits that classify more than 5,000 products. What makes this system truly effective is that it is accepted widely across the world.
HSN comprises more than 5,000 commodity groups. Each commodity is identified by a unique six-digit code that is arranged in a logical, structural manner. Every coding is supported by a well-defined rule that helps it achieve uniform classification.
The HSN code categorises a variety of commodities which aids parties involved in international trade to run the operations seamlessly. The HSN system has been adopted by over 200 nations because it serves the following purposes:
Uniformly classifies goods
Serves as a base for custom tariffs
Aids in a convenient collection of international trade statistics
The code remains standard for almost all goods, barring some nations where it may vary depending on the nature of the classified good(s).
HSN Worldwide
As mentioned above, more than 200 countries have adopted the HSN system. In fact, over 98% of the merchandise involved in international trade carries an HSN code. However, the HSN code may differ a little from country to country.
Significance of HSN in India
India has been an active member of the World Customs Organization since the year 1971.
Hence, it uses the six-digit HSN code to categorise commodities. However, the Customs and Central Excise department uses an eight-digit HSN code.
The additional digits were added to make the codes more precise and further aid in categorising the goods.
The HSN structure contains a total of 21 sections and 99 chapters. It also includes an additional 1,244 headings and 5,224 subheadings.
Every section is divided into chapters, and every chapter is divided into headings. The headings are further divided into sub-headings. The sections and chapters include a broad category of goods, whereas the headings and subheadings depict the nature of the goods in detail.
Here is an illustration that will help you understand the structure and use of HSN code for a particular good, i.e., a handkerchief.
Chapter 61 – These two digits represent the chapter number for the article of apparel accessories
Heading 12 – These digits represent the heading number for handkerchiefs
Sub-heading 90 – The numbers here represent the product code for the handkerchief
Tariff item 11 – These digits denote the particular material used to make the handkerchief, like silk or man-made fibre
Thus, the HSN code of this product is 61.12.90.11.
Declaration of HSN Code for Goods and Services
All taxpayers were required to declare 6-digit codes of HSN in GST invoices by April 1, 2023. Moreover, if you are importing or exporting a commodity, all 8 digits of the HSN code must be declared in the tax invoice to ensure the GST invoice is valid.
When declaring the HSN code, remember that you need to refer to the turnover for FY 2022-23 for reporting invoices in the same financial year. The following table presents the number of digits of HSN codes you need to declare for different types of invoices:
Transaction Charges |
Type of Invoice Document |
Number of HSN Digits to be declared |
Up to ₹5 Crores
|
Mandatory for B2B tax invoices |
4 |
Optional for B2C tax invoices |
4 |
|
More than ₹5 Crores |
Mandatory for all invoices |
6 |
HSN in GST
After the introduction of GST in 2017, the HSN code list was adopted to identify commodities under this new indirect tax regime as well. The following table shows the number of digits of the HSN code you are required to declare by March 31, 2023.
Transaction Charges |
No. of digits of HSN to be declared |
Up to ₹1.5 Crores |
0 |
₹1.5 crore- ₹5 Crores |
2 |
More than ₹5 Crores |
4 |
Importance of HSN under GST
Now that you know the significance of the HSN code in India, it is time to understand the importance of HSN in GST invoices. The GST HSN Code makes the indirect tax system more globally accepted and relevant.
Most importantly, it eliminates the need to include a description of goods and helps save time when filing GST returns. Here is the summary of the common GST HSN Code List:
Sections |
HSN Code List For |
Section 1 |
|
Section 2 |
|
Section 3 |
Chapter 15- Animal or Vegetable Fats and Oils and their cleavage products, prepared edible fats; Animal or Vegetable waxes |
Section 4 |
|
Section 5 |
|
Section 6 |
|
| Section 7 |
|
Section 8 |
|
| Section 9 |
|
Section 10 |
|
Section 11 |
|
Section 12 |
|
| Section 13 |
|
Section 14 |
Chapter 71- Natural or cultured pearls, precious metals, Precious or semi-precious stones; Metal clad with precious metal, and articles thereof; Imitation Jewellery, Coins |
Section 15 |
|
Section 16 |
|
Section 17 |
|
Section 18 |
|
Section 19 |
Chapter 93- Arms and ammunition, parts and accessories thereof |
Section 20 |
|
| Section 21 |
|
Understanding the HSN code is important when filing your GST returns. You can run a HSN code search on the GST portal by chapter or description of goods or services. You can also download the HSN directory from the ‘Search HSN Code’ page on the official website.
This process will help you know the code for your product so that you can eliminate any chance of errors. It will also come to your aid during your GST filing procedure and ensure a simplified, hassle-free process.
As its name suggests, GST is a tax applicable to both goods and services. Just like GST HSN code, Services Accounting Code (SAC) classifies services for their easy identification and taxation.
The Services Accounting Code is part of the HSN Code as Chapter 99 of the last section. For instance, the SAC for ‘Legal documentation and certification services concerning patents, copyrights and other intellectual property rights’ is 998213.
Here,
The first two digits refer to the chapter number in GST HSN Code, which is 99 for all services
The next set of two digits represent the nature of services (legal services in the example cited above)
The last couple of digits shows the detailed nature of the services (legal documentation for patents in the above example)
GST Articles
- GST Penalties
- GST on Labour Charges
- GST on Gold Jewellery
- GST on Cars
- GST on Transportations
- GST on Restaurant
- GST on Clothes
- GST on Electronics
- GST on Mobiles
- GST on Healthcare
- GST on Education
- GST on E-commerce
- GST on Agricultural Products
- GST on Construction Materials
- GST on Food Grains
- GST on Dairy Products
FAQs About HSN Code
Is the HSN code a 6-digit or 8-digit number?
While the HSN code developed by the World Customs Organisation has 6 digits, the Indian government uses an 8-digit code to identify different commodities.
What is the HSN code for 18% GST?
Commodities that fall under Schedule III of the HSN code attract a GST rate of 18%.
Which commodities are exempt from GST?
Many commodities with HSN codes are exempt from GST. For instance, all entries under Section 1 are exempt from GST except for live horses.
Is the HSN code mandatory for GST?
Yes, it is mandatory for taxpayers to declare 4- or 6-digit HSN codes in table 12 when filing GSTR-1.
Is the HSN code mandatory on an invoice?
Yes, as per the GST rules, it is mandatory for taxpayers to declare a 4-digit GST HSN code on B2B invoices. This condition applies only when your average annual turnover (AATO) in the previous year is up to ₹5 Crores.
For B2C invoices, it is optional to have an HSN code. The declaration of a 6-digit HSN code for all invoices is a must if your AATO in the previous year exceeds ₹5 Crores.
What happens if the HSN code is wrong?
On mentioning the wrong GST HSN code, a penalty of ₹50,000 will be levied.
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