What is HSN Code ?
Harmonized System of Nomenclature, or HSN, was conceived and developed by the World Customs Organization (WCO) with the vision of classifying goods from all over the World in a systematic and logical manner. It is a six digit uniform code that classifies more than 5,000 products and is accepted worldwide. These set of defined rules is used for taxation purposes in identifying the rate of tax applicable to a product in a country. It is also used to determine the quantum of product exported or imported in and out of a country. It is a crucial feature to analyze the movement of goods across the World. It is a combination of different sections, further drilled down to chapters, which are further classified into headings and sub-headings. The resultant figure is the six-digit code.
HSN is widespread and is adopted in more than 200 countries, covering a staggering 98% of goods in the World. It is by far, the best logical system of classification and identification adopted in International Trade. It has helped in reducing efforts and costs related to complex procedures of International Trade.
Understanding the digits of HSN Code
The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 sub-headings. The commodity’s manufacturing and technological complexity define the section or chapter to which it belongs. As such, all natural commodities like vegetables, animal produce, etc. belong to the earlier sections, whereas industrial machinery is seen at the later stages.
For e.g. – Processed cotton appears later whereas uncombed, normal cotton appears earlier.
The sections are categorized on a broader perspective. Chapters, on the other hand, have a much more specific categorisation. Like Section 11 covers all kinds of textiles and textile articles, whereas Chapter 62, which falls under Section 11 is expressly for accessories for men and women.
Going further down the chain, chapters have been sub-classified into headings and sub-headings. The headings focus on specific types of products under the Chapters. Continuing with the above example, Chapter 62, heading 13 covers all kinds of handkerchiefs, whereas heading 14 covers scarves and shawls of different types. These headings have a product attached to it.
In the above example, handkerchiefs made of other textile materials are under the heading 13 under Chapter 62. The HSN code for the product is 62.13.90, where 90 is the product code for handkerchiefs made of other textile materials. For a deeper classification, Indian GST has 2 more digits to these commodities. Where the handkerchiefs are made from a human-made fibre, then the HSN code becomes 62.13.90.10. Similarly, 62.13.90.90 belongs to handkerchiefs made out of silk or waste from silk.
When a classification of a product takes places in the above structure, the General Interpretation Rules have to be applied. The trade parlance of the product must be checked first while classifying the product and not its technological manipulation. Where the product is classified on the very first level, then there is no need to drill down further in the strata below.
India has already been using HSN system since 1986 in the Central Excise and Customs regime. It is a much more detailed classification that added another two digits to the 6-digit structure. Indian manufacturers under GST shall be required to follow a 3-tiered structure of HSN.
- Those with a turnover of less than INR 1.5 Crores need not follow HSN
- Those with a turnover exceeding INR 1.5 Crores but less than INR 5 Crores shall be using the 2 digit HSN codes
- Those with a turnover exceeding INR 5 Crores shall be using the 4 digit HSN codes
- Those dealers who are into imports or exports shall mandatorily follow the 8 digit HSN codes
Service Accounting Codes (SAC)
Similar to the International HSN Codes, India has adopted a Service Accounting Code (SAC) for all its services. GST will subsume the service tax, which covers all kinds of services at a national rate of 15%, apart from other rates in some cases. Since GST is a combination of goods and services both, an equable classification for services is also required. SAC will remain the same under the GST regime
The purpose of HSN codes is to make GST systematic and globally accepted. HSN codes will remove the need to upload the detailed description of the goods. This will save time and make filing easier since GST returns are automated. A dealer or a service provider must provide HSN/SAC wise summary of sales in his GSTR-1 if his turnover falls in above slabs.
It is a mandatory requirement under GST to mention HSN/ SAC code in the GST invoice. HSN code is mandatory for all, except with a turnover less than 1.5 Cr in a financial year and a taxpayer who have done GST Registration under the composition scheme.
Since GST returns are completely automated, it will be hard for the dealers to upload the description of the products being supplied. Hence, HSN Codes shall be automatically picked up from the registration details of the dealer and will reduce the efforts thereby. Dealers have to be careful in choosing the correct HSN/SAC code while migrating to GST or making a fresh registration.
HSN – wise summary of outward supplies
| Sections | HSN Code List for |
|---|---|
| Section 1 | Live Animals, Animal Products |
| Section 2 | Vegetable Products |
| Section 3 | Animal or Vegetable Fats and Oils and their cleavage products, prepared edible fats, Animal or Vegetable waxes |
| Section 4 | Prepared Foodstuffs, Beverages, Spirits and Vinegar, Tobacco and Manufactured Tobacco Substitutes |
| Section 5 | Mineral Products |
| Section 6 | Product of the chemicals or allied Industries |
| Section 7 | Plastics and articles thereof, Rubber and articles thereof |
| Section 8 | Raw hides and skins, Leather, Furskins and articles thereof, saddlery and harness, travel goods, handbags and similar containers, articles of animal gut ( other than silk-worm gut ) |
| Section 9 | Wood and articles of wood, Wood charcoal, Cork and articles of cork, Manufacturers of straw, of Esparto or of other Plaiting Materials, Basketwork and Wickerwork |
| Section 10 | Pulp of wood or of other Fibrous Cellulosic Material, Recovered ( Waste and scrap ) paper or paperboard, paper and paperboard and articles thereof |
| Section 11 | Textile and textile articles |
| Section 12 | Footwear, Headgear, Umbrellas, Sun Umbrellas, Walking-sticks, seat-sticks, whips, riding-crops and parts thereof, Prepared feathers and articles made therewith, Artificial flowers, Articles of human hair |
| Section 13 | Articles of stone, plaster, cement, asbestos, mica, or similar materials, ceramic products, glass and glassware |
| Section 14 | Natural or cultured pearls, Precious or semi-precious stones, precious metals, Metal clad with precious metal, and articles thereof, Imitation Jewellery, Coins |
| Section 15 | Base Metals and articles of Base Metal |
| Section 16 | Machinery and mechanical appliances, electrical equipment, parts thereof, sound recorders and reproducers, television image and souch recorders and reproducers, and Parts and Accessories of such article |
| Section 17 | Vehicles, Aircraft, Vessels and Associated Transport Equipment |
| Section 18 | Optical, Photographic, Cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, clocks and watches, musical instruments, parts and accessories thereof |
| Section 19 | Arms and ammunition, parts and accessories thereof |
| Section 20 | Miscellaneous Manufactured Articles |
| Section 21 | Works of art, Collectors’ Pieces and antiques |