What is an HSN Code?
Harmonised System of Nomenclature Code commonly known as HSN Code is a six-digit uniform code classifying 5000 plus products globally. HSN was an idea which evolved from World Customs Organization [WCO] and it was developed with a vision to standardize the classification of all the goods prevailing all around the world, in a systematic and most logical manner. HSN plays a critical role in the tax mechanism of a country and gives the accurate applicable tax rate on any product in a country. This code is also used to analyze a particular product movement worldwide and helps to determine the volume of any product imported or exported.
HSN Code in India
When GST was implemented in India, HSN code list for GST was used all goods for classifying them for the purpose of GST. Earlier, HSN was used to classify goods to compute Excise and Custom in India. The same classification mechanism is adopted under GST for classifying Goods and Service Tax.
GST subsumed most of the indirect taxes like Excise, VAT, Octroi, Service Tax etc. and reduced the burden of on the end consumer by eliminating the cascading effect of taxes. Since 1986, India is using the HSN code system in the Central Excise and Customs regime.
Purpose of HSN
Every tax structure, the erstwhile being Excise and even now GST covers a huge list of goods and services and it becomes difficult for the Government as well as for the tax payers to clearly distinguish and segregate the goods / services based on certain parameters. To avoid such confusions, the system of HSN was adopted to classify the goods properly.
Benefits of HSN
It helps in classifying goods appropriately in a logical and systematic manner thereby facilitating effective business processes. It also helps in creating and maintaining the uniformity among the classification of goods and services across world.
The Indian businesses will be using a 3 layered HSN configuration:
|Turnover < 1.5 crores :||Need not to have any HSN code.|
|Turnover > 1.5 crores but < 5 crores :||2 digit HSN code.|
|Turnover of >5 crores :||4 digit HSN code.|
|Businesses in exports or imports :||8 digit HSN code (irrespective of the turnover).|
The tax payer needs to be declared these HSN codes in every tax invoice issued under GST.
- The previous year turnover will be considered as a basis to find out number of HSN digits to be used.
Indian adaptation of HSN for Goods and Services Tax
India is the member of the World Custom Organisation since 1971. Earlier when Excise law was in place, 6 digit HSN codes were in place to classify the goods under Excise as well as Customs, which was subsequently modified to 8 digit for better reasons.
|HSN Code||– 21 Sections|
– 99 Chapters
– 1244 Headings
– 5224 Sub Headings
|Each section is divided into Chapters|
|Each Chapter is divided into Headings|
|Each Heading is divided into Sub headings|
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Section and Chapter describes
|Headings and Sub Headings describes|
Broad Categories of Goods
|Products in detail|
There are 21 sections under which different goods have been classified categorically as under
HSN Code List under Goods and Services Tax
|Live Animals., Animal Products|
|Animal or vegetable fats and oils and their cleavage products, prepared edible fats, Animal or vegetable waxes|
|Prepared foodstuffs, Beverages, Spirits and Vinegar, Tobacco and Manufactured Tobacco Substitutes|
|Product of the Chemicals or allied Industries|
|Plastics and articles thereof, Rubber and articles thereof|
|Raw hides and skins, Leather, Furskins, and articles thereof, saddlery and harness, travel goods, handbags and similar containers, articles of animal gut|
|Wood and article of wood , Wood Charcoal, Cork and Manufacturers of Straw, of Esparto or of other Plaiting Materials, Basketwork and Wicker Work|
|Pulp of wood or of other Fibrous Cellulosic Material, Recovered(Waste/ Scrap etc)|
|Textile and Textile articles|
|footwear, Headgear, Umbrellas, Sun umbrellas etc|
|Articles of stone, plaster, cement asbestos etc|
|Natural/ cultured pearls……………..jewellery/ coins etc|
|Base Metals and articles of Base Metals|
|Machinery and Mechanical appliances etc|
|Vehicles, Aircraft, Vessels and Associated Transport Equipment|
|Optical, Photographic, Cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, clocks and watches, musical instruments, parts and accessories thereof|
|Arms and ammunition, parts and accessories thereof|
|Miscellaneous Manufactured Articles|
|Works of art, Collectors’ Pieces and antiques|
Declaration of HSN Code under Goods and Services Tax
The HSN Codes are mandatory required to be declared in every tax invoice issued by tax payer. However the declaration is dependent upon the turnover of the previous year as mentioned below-
|Turnover||No of HSN digits to be declared by the tax payer|
|Upto Rs. 1.5 crores||0|
|Rs. 1.5 crores- Rs. 5 crores||2|
|More than Rs. 5 crores||4|
Services Accounting Code(SAC) under Goods and Services Tax
Unlike Excise law, GST deals with both Goods and Services, therefore it has to fulfill the requirements for the classification of both Goods and services. in line with the classification of Goods as per HSN, the services are also classified as per SAC. It’s a 6 digit code as per which-
- First two digits are common to all services
- The next two represents the major nature of services
- The last two digits represents the detailed nature of services
State Code List
As the name itself explains that the state code list explains the coding of the states as included in the GST structure for identification of the transactions and place of supply. Usually the alphabetic or alpha numerals are considered for giving coding to states but in GST only numerical codes are used to identify and distinguish the implication of tax i.e. whether CGST/ SGCT or IGST will be charged.
If the GSTIN and Place of Supply under GST state code is of the same state then CGST/ SGST will be applicable and if the GSTIN and Place of Supply state codes are different then IGST will be applicable.