HSN code is a system that is introduced for the systematic classification of goods all over the country or world. HSN full form is the Harmonized System of Nomenclature. It is a 6-digit uniform code that categorises and classifies more than 5,000 products. Notably, the codes are accepted worldwide. The codes are developed by the World Customs Organisation (WCO), and they came into effect in 1988.
There are about 5,000 commodity groups which are identified by a six-digit code. The codes are arranged in a logical and legal structure which is supported by well-defined rules to achieve uniformity in classification.
Why is HSN Code Important?
Many business owners don’t understand what HSN code is, and they search for it online. The primary purpose of the HSN codes is to classify the goods in a systematic order and logical manner. This helps in bringing a uniform classification of products and services on international trade.
HSN Codes Worldwide
The GST HSN codes are used to classify over 98% of the merchandise in 200+ countries for the following reasons:
- Uniform classification
- The base for Custom tariffs
- International trade statistics (collection)
The HSN codes for services and products are accepted by most of the countries and remain the same for almost all products/goods. However, depending on the nature of the products classified, HSN code list varies a bit in some countries.
HSN In India
Since 1971, India is also a member of World Customs Organisations. The codes were originally six-digit codes to classify the products and commodities for Customs and Central Excise. Later the two-digits were added to make the codes more precise. So, the codes are now eight-digit codes.
Understanding the Structure of the HSN Code
The structure of HSN codes as follows:
- 21 sections → 99 chapters → 1,244 headings → 5,224 subheadings
Notably, each of the 21 sections is divided into chapters. And each chapter has headings which are further divided into subheadings. The titles of the sections and chapters describe the broad categories of goods. And the headings and subheadings describe the goods and products in detail.
For instance, the HSN code for handkerchiefs made of textile material is 62.13.90, where:
- 62 represent the chapter of the list – articles of apparels and clothing.
- 13 represent the heading – handkerchiefs.
- 90 represent the product code – handkerchiefs made of textile materials.
However, India has two more digits more in-depth classification.
If the handkerchief is made from silk or waste from silk, the code will be 18.104.22.168
Whereas if the handkerchief is made from human-made fibre, the code will be 22.214.171.124
What is SAC in GST?
HSN code is for products and good whereas SAC is for services. Like HSN code classify different goods and products, SAC classifies various services. It is also used uniformly for measurement, recognition, and taxation. SAC full form is Services Accounting Code.
HSN in GST
The following are the HSN codes to be declared based on the business turnover:
|Business Turnover||No. of HSN code Digits to be Declared|
|Up to Rs. 1.5 crores||0|
|From Rs. 1.5-5 crores||2|
|More than Rs. 5 crores||4|
Notably, HSN codes need to be declared in all the tax invoices under GST. And the turnover of the previous year will be considered for this purpose.
Importance of HSN under GST
The main objective of the HSN codes is to make GST taxation regime systematic and globally accepted. The codes have eliminated the need to enter the detailed description of the products in the tax receipt. This saves time and effort and makes it easier for the business owner to fill returns.