HSN Codes - GST

HSN Codes  - GST

The world of international trade depends on a regular system for classifying goods: the Harmonized System of Nomenclature (HSN). Developed by the World Customs Organization (WCO), HSN codes ensure a uniform way to categorize over 5,000 products across more than 200 countries. This system is important in India's Goods and Services Tax (GST) regime.

What is HSN Codes?

An HSN code is a six-digit numerical identifier assigned to a specific product. This code denotes the product's category based on a structured hierarchy:

•         Chapters: Broad categories (e.g., Chapter 2 - Meat and edible offal)
•         Headings: More specific groupings within chapters (e.g., Heading 02.01 - Meat of bovine animals, bone-in)
•         Subheadings: Further refine product classification (e.g., Subheading 0201.10 - Carcasses and half-carcasses of bovine animals, bone-in)

HSN codes are essential for various reasons:

•        Uniform Classification: Ensures consistency in product categorization across borders.
•        Customs Tariffs: Forms the basis for determining import and export duties.
•        International Trade Statistics: Enables tracking of global trade flows for specific products.

HSN Codes and GST in India

India adopted the HSN system for its Central Excise and Customs regime long before GST implementation. However, GST introduced a slight modification:

•      HSN Code Length: For GST purposes, Indian businesses might need to use an extended HSN code with additional digits depending on their annual turnover: 

o   No HSN code is required for businesses with a turnover below ₹1.5 crore.

o   2-digit HSN code for businesses with a turnover between ₹1.5 crore and ₹5 crore.

o   4-digit HSN code mandatory for businesses with a turnover exceeding ₹5 crore.

o   8-digit HSN code for importers and exporters (includes additional digits for customs purposes).

Benefits of HSN Codes in GST:

•        Standardization: Promotes uniformity in product classification across India, simplifying tax administration.
•        GST Rate Determination: HSN codes help identify the applicable GST rate for a particular product.
•        Automated GST Returns: HSN codes enable an automatic population of product details in GST return forms, saving time and effort.

HSN Code vs. SAC Code

While HSN codes classify goods, the Service Accounting Code (SAC) system classifies services under GST. Like HSN codes, SAC codes determine the applicable GST rate for a specific service. SAC codes typically have a four-digit structure.

HSN codes are a fundamental building block of the GST regime. Understanding how HSN codes classify products and their role in determining GST rates is crucial for businesses of all sizes. By leveraging HSN codes accurately, businesses can ensure efficient GST compliance and avoid potential complications.