Harmonized System of Nomenclature, or HSN is a code that was developed by the World Customs Organization (WCO) with an aim to classify goods across the world in a methodical manner. This globally accepted code consists of six digits classifying 5,000+ products, and this classification is used for taxation purposes in identifying the rate of tax applicable to a product in a country. Besides, this code is also useful in determining the significance of an item traded by a nation.
Benefits of HSN Code
The primary purpose of the HSN code is the systematic classification of goods, gather trade data and solve problems, resulting in an efficient international trade system. It is used worldwide with over 200 countries participating to avail the benefits below:
- Access to international trade statistics
- Provision of a rational basis for customs fee
- Uniform classification of products
At present, approximately 98% of international trade stock is classified in terms of HSN. That means, each commodity in every country has the same number for same variety of goods.
HSN in India
HSN in India was originally a 6-digit code used to classify commodities for Customs and Central Excise. However, two more digits were added on later by Customs and Central Excise to make the codes more precise. The current coding system includes 8 digits.
HSN Codes for GST in India
India has already been using HSN system in the Central Excise and Customs regime, but with the arrival of GST, almost all goods in India are classified using the HSN classification code. It is used for the Goods and Service Tax (GST) calculations.
It must be noted that the HSN number needs to be clearly mentioned on GST Invoices while preparing Tax Invoice and the turnover of the previous year will be considered for this purpose.
Provisions related to HSN under GST are
Under GST law, the HSN code to be used by a taxpayer will be on the basis of taxpayer’s turnover. Following HSN codes need to be declared while filling GST:
|Business Turnover||No. of HSN code Digits to be Declared|
|Up to ₹1.5 crore||0|
|From ₹1.5-5 crore||2|
|More than ₹5 crores||4|
This implies, those with a turnover of less than INR 1.5 Crores need not follow HSN.
Importance of HSN under GST
HSN codes under GST make taxation regime systematic. The introduction of these codes have eliminated the need to enter the detailed description of the products in the tax receipt, making the process time saving and smooth for a business owner while filling returns.
The HSN code needs to be declared on the tax invoice and must be reported while filing the GST returns.
The taxpayers with turnover between ₹1.5 crore and ₹5 crore in the preceding financial year, specifying HSN codes for the first year of GST operations is optional, but from the second year of GST operations, mentioning HSN code is mandatory for all taxpayers with.
For taxpayers with turnover of over ₹5 crores in the preceding financial year, HSN code is mandatory.
- Section I (Chapters 1 to 5) covers live animals and animal products
- Section II (Chapters 6 to 14) covers vegetable products
- Section III (Chapter 15) covers animal or vegetable fats and oils
- Section IV (Chapters 16 to 24) covers beverages, spirits, vinegar, and tobacco
- Section V (Chapters 25 to 27) covers mineral products
- Section VI (Chapters 28 to 38) covers chemical and para-chemical products
- Section VII (Chapters 39 to 40) covers plastics and rubber, and articles thereof
- Section VIII (Chapters 41 to 43) covers certain animal hides and skins
- Section IX (Chapters 44 to 46) covers wood, cork, manufactures of straw, and articles thereof
- Section X (Chapters 47 to 49) covers pulp of wood, paper, paperboard, and printed products
- Section XI (Chapters 50 to 63) covers textiles and textile articles
- Section XII (Chapters 64 to 67) covers footwear, headgear, umbrellas, walking sticks, prepared feathers, artificial flowers, and articles of human hair
- Section XIII (Chapters 68 to 70) covers articles made of minerals, stone, plaster, cement, etc., and ceramic and glass products
- Section XIV (Chapter 71) covers precious metals and stones
- Section XV (Chapters 72 to 83) covers base metals and articles thereof
- Section XVI (Chapters 84 to 85) covers machinery and mechanical appliances, electrical equipment, sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles
- Section XVII (Chapters 86 to 89) covers vehicles, aircraft, vessels, and associated transport equipment
- Section XVIII (Chapters 90 to 92) covers optical, photographic, cinematographic, and musical apparatus and equipment; measuring, medical, surgical, and other instruments; and clocks and watches
- Section XIX (Chapter 93) covers arms and ammunitions
- Section XX (Chapters 94 to 96) covers miscellaneous manufactured articles
- Section XXI (Chapters 97 to 99) covers arts, collector’s pieces, and antiques (Note: Chapter 99 is reserved for national use)
What is SAC code?
Services Accounting Code or SAC is a code under which services falling in the purview of GST are classified. Both HSN and SAC codes are used to classify goods and services under the GST regime in India.
What is SAC in GST?
While HSN code is for the products, SAC is for the classification of services. This code is also used uniformly for measurement, recognition, and taxation.