HSN Code: Meaning, Need, Classification and FAQs

hsn code gst india

The world has seen a drastic change since International Trade and Commerce came into picture. With millions of products and services being transacted around the world every single day (some of which are country specific), it is imperative to have an in-depth knowledge of goods and services being traded, and individuals speaking the same language irrespective of their geographical boundaries. This is where the HSN code comes into play and has now become an integral part of trade and commerce.

In this article, we have covered all the topics such as understanding HSN code, need for the HSN code, who is the HSN code meant for, the purpose of HSN code, classification of HSN code, how to derive the HSN code and other HSN code related FAQs.

 

Understanding The HSN Code


HSN stands for Harmonized System of Nomenclature. This term was introduced and developed by the WCO (World Customs Organization) to classify goods existing in the entire world in a logical and systematic manner. It is a uniform code that has six unique digits that classify five-thousand products and are accepted all over the world. The set of rules is used to identify the rate of tax applicable on a product in the given country. Additionally, it is used to determine the number of goods exported and imported from a country.

HSN is adopted by more than two hundred countries, which covers a whopping 98% of goods worldwide. This can be called as the best logical system of identification and classification adopted by International Trade as it has helped in reducing costs and efforts related to complex and tiresome procedures of International Trade.  


How Does The HSN Code Work?


With almost five thousand commodity groups that can each be identified by a unique six-digit code, HSN code is arranged in a logical and legal structure.  


Why Is It Important?


HSN code was introduced to ensure uniformity of goods all over the world. This was done to reduce costs and efforts and help in the classification of goods in a manner that could be understood by all.  


HSN Code Worldwide


The HSN code is used by almost 200 countries around the glove for the following reasons:

  • Facilitates the uniform classification of goods
  • Provides as a base for custom tariffs
  • It helps in collecting international trade statistics
The HSN code remains the same for almost all products in all the countries with the exception of a few goods that might have a little change.  


HSN Code in India

Since 1971, India has been a member of WCO and originally used 6-digit HSN codes for the classification of commodities for Customs and Excise. Later, two more digits were added by the Customs and Excise department making the HSN code more accurate.  


hsn code in india  



Who Is The HSN Code Meant For?

Under the GST regime, dealers are expected to adapt to 2, 4 or 8 digit HSN codes for their goods and services, depending on the turnover for the previous year.

  • Dealers who had a turnover of less than ₹1.5 crores are not required to adapt to HSN codes for their products and services.
  • Dealers who had a turnover amounting to ₹1.5 - ₹5 crores are required to use 2 digit HSN codes for their products and services.
  • Dealers who had a turnover of equal to or above ₹5 crores are required to use 4 digit HSN codes for their products and services.
  • Dealers who are involved in imports and exports are required to use an 8 digit HSN code for their products and services.


Classification

HSN Code is divided into twenty-one sections, ninety-nine chapters, more than a thousand headings, and five thousand subheadings. All the sections along with their chapters are arranged in terms of their technological complexity or the item’s degree of manufacture. For instance, vegetable and animal products appear in the first section whereas art and collectibles appear in the last section. Chapters can sometimes be confusing as they have a very similar structure. For example, if we take cotton from chapter 52, cotton as an unwoven fabric and woven fabric has to specified in a different manner.

Every section comprises of several chapters. Sections are used to represent the broader class of goods. Chapters, on the other hand, are used to represent the specific class of goods.

  • Each and every chapter divided into several subheadings that depend on the types of goods belonging to one class.
  • Every heading comprises products that are ultimately assigned to a particular HSN code.
  • For a deeper classification and identification of commodities, some countries like India use an eight-digit code.
  • A few HSN codes also comprise dashes. One single dash (-) at the beginning of the description signifies an article that belongs to a group that is covered under a heading. Two dashes (--) signify that this article is a sub-classification of the preceding article which had a single dash. Three (---) or four dashes (----) signify that this article is again a sub-classification of the preceding article which had two or three dashes.
There is a set of specific rules for classifying products called the General Interpretative Rules. In simpler terms, it is a set of general rules for the interpretation and classification of the Harmonized System. The first four rules are related and should be implemented in a sequence. The last two rules can be applied as per the needs of the dealer.

Rule 1:
Titles of sub-chapters, chapters, and sections are provided only for reference purposes. Sub-headings and headings are provided for legal purposes.

Rule 2a:
Classification of goods that are unfinished or incomplete has to be classified as finished products if they have the same characteristics such as that of finished products. Headings should also include unassembled/disassembled/removed parts.

Rule 2b:
If 2 components of a mixture are seen individually, they shall have a different heading, but a mixture can have a different HSN code.

Rule 3a:
General headings of a product are considered over specific headings.

Rule 3b:
If a mixture does not have a specific heading then that component that gives the mixture its main character will be considered for deriving the HSN code.

Rule 3c:
If an item can be associated with two headings, choose that heading that appears last in numerical order.

Rule 4:
In case the goods cannot be classified according to the above-mentioned rules, they should be classified according to goods they are most similar to.

Rule 5:
Containers that are exclusively designed for any product and are suitable for long-term use, will be classified with that product if these products are generally sold with such containers. For instance, sunglass pouch/case will fall under sunglasses.

Rule 6:
Containers and packing materials are to be classified with their related products with the exception of that packaging material that cannot be used repetitively.  


HSN Code Sections

  1. Section I comprises five chapters (1-5) which cover animal products and live animals.
  2. Section II comprises nine chapters (6-14) which cover vegetable products.
  3. Section III comprises one chapter (15) which covers vegetable or animal oils and fats, their cleavage products, vegetable or animal waxes, their cleavage products.
  4. Section IV comprises nine chapters (16-24) which cover spirits, beverages, prepared foodstuff, tobacco along with its substitutes, and vinegar.
  5. Section V comprises three chapters (25-27) which cover mineral products.
  6. Section VI comprises eleven chapters (28-38) which cover para-chemical and chemical products.
  7. Section VII comprises two chapters (39-40) which cover rubber and plastics and articles thereof.
  8. Section VIII comprises three chapters (41-43) which cover certain animal hides and skins fur skins and their articles thereof, leather, harness and saddlery, handbags along with similar containers, travel goods, articles of animal gut.
  9. Section IX comprises three chapters (44-46) which cover manufacturers of straw, cork, wood and their articles thereof, manufacturers of Esparto, or manufacturers of any plaiting materials, wickerwork, basketwork.
  10. Section X comprises three chapters (47-49) which cover pulp of wood, paperboard, printed products, and paper (waste or scrap).
  11. Section XI comprises fourteen chapters (50-63) which cover textile and textile articles.
  12. Section XII comprises four chapters (64-67) which cover headgear, footwear, walking sticks, umbrellas, artificial flowers, articles of human hair, seat-sticks, riding crops, whips, and prepared feathers.
  13. Section XIII comprises three chapters (68-70) which cover articles made of stone, mica, minerals, cement, plaster, glass, glassware and ceramic products.
  14. Section XIV comprises one chapter (71) which covers precious stones and metals.
  15. Section XV comprises twelve chapters (72-83) which cover base metals and their articles thereof.
  16. Section XVI comprises two chapters (84-85) which cover mechanical appliances and machinery, sound reproducers and recorders, television images, electrical equipment, along with their accessories and parts.
  17. Section XVII comprises four chapters (86-89) which cover vessels, aircraft, vehicles, and their associated transport equipment.
  18. Section XVIII comprises three chapters (90-92) which cover photographic, optical, cinematographic, clocks, watches, precision, checking, measuring, surgical, medical and other instruments, musical equipment and apparatus.
  19. Section XIX comprises one chapter (93) which covers arms, ammunition, parts, and accessories made thereof.
  20. Section XX comprises three chapters (97-99) which cover collector’s pieces, antiques, art and misc. Manufactured articles.
(Note: Chapter 77 is reserved for future uses while chapter 99 is reserved for national uses.)  


How Can I Derive HSN Code for an Item?

Deriving HSN codes is easy. Follow these simple steps to derive HSN code for any product:

  1. Visit the official website.
  2. Type in the relevant chapter/heading/sub-heading (or tariff item if known) for the product.
  3. Type in the description of goods before clicking on the search button or pressing ‘enter’ key from your keyboard.
You will get the results relevant to the details specified by you along with its chapter/heading/sub-heading/tariff item, CGST rate, SGST/UTGST rate, IGST rate and compensation cess.  

 



HSN Code Related FAQs


1. What does UQC stand for?

It stands for Unique Quantity Code and it can be defined as a unit of measurement. For instance, 1 kg wheat, 1-liter oil, etc.

 
2. Is the HSN code compulsory for all dealers?

HSN code is compulsory in all cases except:

  1. Dealers who have an annual turnover of less than ₹1.5 crores.
  2. Dealers who are registered under the composition scheme of GST are exempted from the usage of HSN code.
 
3. Why is the HSN code required at the time of filing GST?

So that the HSN codes automatically get filled (based on the registration details) of the dealer which helps in reducing the effort needed to be put in by the dealer or the taxpayer.

 
4. Why is a specific HSN and SAC code required while filing GST?

A correct code is required to calculate the accurate amount of tax on the product or service.

 
5. Are these codes notifies by the Government?

Yes, both the Sac and HSN codes are available on the official website.

 
6. How can Merrchant help you?

There has been a drastic change since the implementation of GST. This left several business owners clueless. They found it difficult to focus on work while being GST compliant. Merrchant has an inbuilt HSN code finder that generates HSN code with GST rate. 

Additionally, our software was designed keeping in mind all these factors and is extremely user-friendly. It is completely automated which reduces your manual effort to a greater extent and also minimizes errors. From registration to filing notices and filing returns - we've got you covered.

Shristi Patni

Shristi Patni is a finance and lifestyle expert and currently works at Merrchant.

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