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HSN Code: Objective, Requirements, Importance & Working

This article will focus on the meaning, importance and the working of HSN Codes in India. HSN is a six-digit code that classifies more than 5000 products. It is organized legally and logically.

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HSN Code: Harmonized System of Nomenclature Code

HSN is a six-digit code that classifies more than 5000 products. It is organized legally and logically. The HSN supports uniform classification and is recognized worldwide by well-defined rules.

HSN(Harmonized System of Nomenclature) classification is widely used in taxation. 

hsn code

It helps to determine the tax rate applicable to a product in a country under review. It is also useful in calculations that include claiming benefits. This article will focus on the meaning, importance and the working of HSN Codes in India.

Objective of using HSN Codes

HSN codes are applied to export and import. The HSN code assists individuals in determining the number of products that are collected in a country.  It eliminates uncertainty and makes it easy to conduct business on both a national and global scale. 

HSN codes are used to trade over 20,000 products across the globe. The WCO uses the HSN codes to manage more than 90% of all global trade. India joined the WCO by approving the HSN code procedure.

Who is required to use the HSN Code in India?

HSN codes are used widely by Indian wholesalers and retailers. Based on the following laws, they should use HSN codes of 2 digits, 4 digits, or 8 characters for trading in India and away from India.

HSN codes do not need to be used if the company turnover is less than Rs 1.5 crores. However, if the turnover of the business is between Rs 1.5 and Rs 5 crores, HSN codes must still be used for commercial trades.

  • Companies with more than Rs5 crores in annual revenue can only use four-digit HSN numbers.
  • For import and export transactions as well as worldwide trades, 8-digit HSN numbers must be provided.

The HSN module categorizes items into 21 distinct divisions, 99 chapters, and 1244 headings. There are also 5244 subheadings.

  • HSN Code: 3908 90 20 at random from a list of HSN codes.
  • The HSN code chapter is depicted by the main two numbers (39)
  • The chapter headers are indicated by the following numerals: 08 and 09
  • The sub-headings are implied by the following two digits (90), followed by six digits. Internationally, the HSN code can be heard.
  • The tariff heading for the products at supply import and export is subdivided by the following 20 digits

HSN codes are a way to preserve time and capital under India’s GST system.

Importance of the HSN Code

Although the HSN code’s primary function is to categorize goods, it can also be used for data gathering and solving problems that might otherwise be difficult. However, it is an even more efficient international trading system.

HSN is utilized in more than 200 countries worldwide. 

The benefits of HSN are responsible for this impressive adoption rate, which includes:

  •     International trade statistics obtained.
  •     Requirement of a practical basis for Customs tariffs
  •     Uniform classification

HSN is the most widely used international classification system. It has been credited with a high level of international classification, accounting for nearly 98% of all international trade stock.

HSN numbers are available for every commodity in every country. The number is the same for nearly all goods. HSN numbers may vary slightly in some countries because they are entirely dependent on the classification of the items.

How does HSN in India work?

Since 1971, India is a part of the WCO, as to categorize products for Customs and Central Excise duties, it used six-digit HSN codes. The Customs and Central Excise councils enhanced two extra digits to make the codes more precise. The result was an eight-digit HSN designation.

Nearly all Indian goods are classified using HSN codes. This code allows for the calculation of the Goods & Service Tax (GST) and facilitates the usage of HSN numbers. This number is used to classify goods and calculate VAT (Value-Added Tax).

Things to know about HSN code in GST invoices

When preparing GST Invoices, it is important to mention the HSN number.

These are the HSN classifications in India, ranging from two to eight digits.

  • Small taxpayers earning less than Rs. 1.5 crore per annum are eligible for some relief from the government. 1.5 million in the previous financial year. This move will eliminate the need for small taxpayers not to include HSN codes in their income tax returns.
  • If the turnover of a taxpayer is between Rs. 1.5 million to 5.00 million, the taxpayer must mention two digits only of the HSN code.
  • Five digits must be included in the HSN code for taxpayers earning more than Rs. 5.00 crore.

 

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Conclusion

HSN doesn’t just help Customs agents, it has important implications for GST. It makes GST more systematic and universally accepted.

HSN codes exclude the desire to upload thorough explanations for every good that falls under GST. This allows the automatic submission of GST returns. It saves time and money.

If you’re still having questions regarding the HSN Code, we are ODINT Consultancy. We are here to help you in every manner.

FAQ’s

The DGFT (Directorate General of Foreign Trade) is accountable for any revisions, formulations, or additions to the HSN Codes.

HSN Codes list has been categorized into 23 major categories under All Categories. You can navigate from this menu to the HSN Codes of 2-digit, 4, and 6-digits, as well as 8-digits. Click on any 4-digit code to detect the GST rates for HSN codes.

Turnover higher than Rs. 5 Crore must use 6-digit HSN codes for all invoices. A turnover of less than or up to Rs 1.5 crore. But for all B2B invoices, 5 crores must use a 4-digit HSN Code.

Exports require the ITC-HS Codes. Export incentives will be forfeited otherwise if the 8-digit HSN Code on the shipping invoice is not provided. HSN codes are not required by GST for businesses that have a turnover of less than Rs 1.5 million or if the dealer has been registered under the GST Composition Scheme.

To locate an HSN code for the commodity, initially choose the Chapter. Later, select the Section. Finally, screen the subheading to obtain the product code. HSN code Chana Roasted, for example, is 19.04. 10.90, where 19 is the Chapter and 04 is the Section. 10 is the Subheading, and 90 is the Product.

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