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HSN Code: Understand HSN Code with GST Rate

13 min read

What is the HSN Code?

HSN stands for ‘Harmonized System of Nomenclature’ and it is an internationally accepted coding system. The World Customs Organization (‘WCO’) developed HSN to facilitate trade flow and analysis of trade statistics. This system was introduced in 1988. This system is adopted by around 200 countries in order to ensure uniformity while classifying goods for the purpose of Customs.

Thus, one had to refer to the Customs Tariff Act, 1975 to classify goods correctly prior to the advent of GST. Such an appropriate classification of goods helped to determine Customs Duty to be levied on a particular commodity.

However, with the advent of GST, it was notified that the existing rules of classification applicable to the Customs Tariff shall continue to apply for classification in GST.

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Get List of HSN Code for GST in pdf format:

Download HSN Code with Item Name By wpcombtax.nic.in

GST HSN-SAC Code List By etdut.gov.in

Detailed GST Rates (item name & HSN Code) By kvic.org.in

Check How to Get the HSN / SAC codes to Appear in Printed Invoices in QuickBooks

How does HSN code work?

The HSN contains more than 5,000 commodity groups each of which is identified by a 6-digit code. This code follows a logical order supported by rules that are clearly defined in order to achieve uniformity in classification.

Why is HSN important?

HSN system of classifying goods ensures uniformity as it brings similar items sold by different industries and business sizes at parity. Thus, such a uniformity helps the government in collecting data regarding different trades and industries in a standardized way.

Further, such a system helps in ascertaining the tax rates of various categories of goods or services. Such rates are determined depending upon whether the goods or services are merits, demerit or neutral.

Also, the HSN system helps in distinguishing goods from services as well as ascertaining exempted categories of items.

HSN in India

India has been a member of the World Customs Organization (WCO) since 1971. Initially, India adopted 6 digit HSN Codes in order to classify items for the purpose of Customs as well as Central Excise Duties.

But eventually, the Customs and Excise authorities added two more digits to make the codes more precise. Thus, an 8 digit HSN Classification system was followed.

So, all the goods in India are classified using the HSN system of classification. Hence, even Goods and Services Tax has adopted the HSN Code system to classify goods.

HSN Worldwide

The HSN System of classification is used by more than 200 countries across the globe. Such a mass adoption of the system authenticates how beneficial it is in classifying the items. Some of the benefits that it offers include:

  • Providing aid in collecting statistics pertaining to international trade
  • Classifying the items uniformly
  • Offering a rational basis for Customs Tariffs

To add to this, 98% of the international trade stock is classified in terms of HSN. This further authenticates the importance and relevance of such an international system of classification.

Thus, each country has a specific HSN Code assigned to every commodity. This number remains the same for almost all the goods. However, there might be some variation in HSN Numbers in certain countries. Such a variation is based on the nature of items classified.

Understanding the HSN Code

The HSN Structure contains 21 sections, 99 Chapters, around 1,244 headings and 5,224 sub-headings.

What is a Section?

Each section has a number of chapters that set out codes for a specific class or category of goods. For instance, Section I covers codes for the category ‘Live Animals’ and Section IV lays out codes for goods covered under the category ‘Prepared Foodstuffs, Beverages’.

What is a Chapter or a Sub-Chapter?

Then, each of the chapters and sub-chapters contains a particular class of goods that relate to the nature of goods of its Section. For example, the Section IV that refers to ‘Prepared Foodstuffs, Beverages’ covers the following Chapters: (1) Chapter 16 – Preparations of Meat, Fish etc., (2) Chapter 17 – Sugar and Sugar Confectionery and (3) Chapter 18 – Cocoa and Cocoa Preparation.

What is a Heading or a Sub-Heading?

Lastly, every Chapter is divided into a number of heading and sub-headings. These headings and subheadings depend upon the various types of goods covered under each Chapter. For instance, the Chapter 17 – Sugar and Sugar Confectionery is divided into headings like: (1) Cane or Beet Sugar (2) Other Sugars, Molasses (refining of Sugar) and (3) Other Sugar Confectionery.

Thus, to find a relevant classification, you need to scale down your search by first identifying the relevant Section and then the appropriate Chapter.

Once you come across the correct Chapter that defines your good, you then need to find the relevant Heading or Sub-Heading.

Say for instance, to find the HSN Code for Alloy Pig Iron, you first need to find out the relevant section. Section 15 covers items pertaining to ‘Base Metals and Articles of Base Metal’. Then, the next step is to find the relevant Chapter under Section 15. Section 15 covers chapters 72 to 83.

Now, Chapter 72 relates with ‘Iron and Steel’.So, to find the code specifically for Alloy Pig Iron, we need to further delve into Headings under the same Chapter. Thus, the Heading Code ‘7201’ relates with ‘Pig Iron and Spiegeleisen in Pigs, Blocks or Other Primary Forms’. And under this, the Sub-Heading Code “720150′ relates with Alloy Pig Iron; Spiegeleisen.

The great thing about the HSN System is that the commodities are arranged in increasing order of the manufacturing process. This means that the Tariff Structures covers rawa materials first, then semi-finished goods and finally the finished goods.

Structure of HSN Codes

Say for instance, we take the HSN Code 72015010 for our reference in order to understand the structure of the HSN Code.

  • The First 2-digits of the HSN code ’72’ refer to the Chapter number under a particular section in the module. Thus, Chapter 72 is covered under Section 15 of the HSN Module titled ‘Base Metals and Articles of Base Metal’.
  • Then, the next two digits combined with the first two digits (that is the First 4 Digits) refer to the Heading under a specific Chapter. Thus, the numbers ‘7201’ refer to the Heading ‘Pig Iron and Spiegeleisen in Pigs, Blocks or Other Primary Forms’ under Chapter 72 of Section 15.
  • The next two digits combined with the first four digits (that is 6 Digits combined) refer to the Sub-Heading. Thus, the numbers ‘720150’ refer to the Sub-Heading ‘Alloy Pig Iron, Spiegeleisen’ under the Heading ‘Pig Iron and Spiegeleisen in Pigs, Blocks or Other Primary Forms’.
  • Lastly, the complete 8 Digits refer to the regional tariff. Thus, the numbers ‘72015010’ refer to the regional tariff referring to the description ‘Classification of Cast Iron’.

HSN Codes Declared

The Central Government notified cases where a registered person shall mention the digits of HSN Codes. Therefore, the registered person shall mention
HSN Codes in a tax invoice if he has an annual turnover in the preceding financial year as specified below:

S.No.Annual Turnover in the Preceding Financial YearNumber of Digits of the HSN Code
1.Upto Rs 1.50 CroresNil
2.More Than Rs 1.50 Crores But Upto Rs 5 Crores2
3.More Than Rs 5 Crores4

However, a registered entity needs to use the complete 8 Digit Code irrespective of its turnover in case it is into imports or exports.

So, it is mandatory for a taxable registered person to specify the HSN Codes in all the tax invoices issued by him. Furthermore, the number of HSN digits to be used would depend upon the annual turnover of a registered taxable person in the preceding financial year.

HSN – wise summary of outward supplies

SectionsHSN Code List For
Section 1Live Animals, Animal Products
Section 2Vegetable Products
Section 3Animal or Vegetable Fats and Oils and their cleavage products, prepared edible fats, Animal or Vegetable waxes
Section 4Prepared Foodstuffs, Beverages, Spirits and Vinegar, Tobacco and Manufactured Tobacco Substitutes
Section 5Mineral Products
Section 6Product of the chemicals or allied Industries
Section 7Plastics and articles thereof, Rubber and articles thereof
Section 8Raw 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 9Wood 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 10Pulp of wood or of other Fibrous Cellulosic Material, Recovered ( Waste and scrap ) paper or paperboard, paper and paperboard and articles thereof
Section 11Textile and textile articles
Section 12Footwear, 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 13Articles of stone, plaster, cement, asbestos, mica, or similar materials, ceramic products, glass and glassware
Section 14Natural or cultured pearls, Precious or semi-precious stones, precious metals, Metal clad with precious metal, and articles thereof, Imitation Jewellery, Coins
Section 15Base Metals and articles of Base Metal
Section 16Machinery 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 17Vehicles, Aircraft, Vessels and Associated Transport Equipment
Section 18Optical, Photographic, Cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, clocks and watches, musical instruments, parts and accessories thereof
Section 19Arms and ammunition, parts and accessories thereof
Section 20Miscellaneous Manufactured Articles
Section 21Works of art, Collectors’ Pieces and antiques

Services Accounting Code (SAC) in GST

The services under GST are categorized under the Services Accounting Code (SAC) system of nomenclature. These codes are issued by the Central Board of Excise and Customs (CBEC) to classify all the services uniformly.

This system of accounting codes for services was first developed by the Service Tax Department of India. This system was introduced to classify various services and identify the applicable service tax rates.

Thus, GST Council adopted the SAC system of nomenclature, thus giving a unique code to each category of services. There are 5 slab rates to levy GST for different services. These include 0%, 5%, 12%, 18% and 28%.

Thus, this system defines each service and helps in identifying relevant tax rates for each of the services.

Structure of SAC Code

SAC code is an all-numeric code and strictly comprises of six digits. Take for example the SAC Code 998431.

  • The First 2 Digits of the SAC Code are by default 99. All services begin with 99 as this is what separates services from goods. 99 is the code that represents the Chapter and it remains constant. Thus, the code ’99’ remains the same for all the services.
  • Next two digits of the SAC Code refer to the Heading under the Chapter that reflects the major nature of the underlying service. Thus, the next two digits ’84’ refer to the Heading ‘Services of public libraries by way of lending of books, publications or any other knowledge-enhancing content or material.’
  • The Last two digits of the SAC Code refer to the sub-heading reflecting the detailed nature of the service in question. Thus, the last two digits ’31’ in the above mentioned code refer to the Sub-Heading ‘On-line text based information such as online books, newspapers, periodicals, directories etc’.

FAQ’s

How can I find my product in HSN list and its relevant HSN Code?

To find out HSN or SAC codes for respective goods or services, go to the ministry’s website and open the list for GST Rates for Goods and GST Rates for Services. QuickBooks Accounting Software provides HSN/SAC Rate Finder to search for the relevant HSN or SAC Codes.

What type of businesses are not required to use HSN code while selling their goods?

Businesses having an annual turnover of less than Rs 1.50 Crores in the preceding financial year are not required to mention the HSN Code in the invoices issued by them for supply of goods undertaken by them.

How many codes are businesses required to mention on the invoice?

Businesses having an annual turnover of more than Rs 5 Crores in the previous financial year are required to use 4 digit HSN Codes for the commodities sold by them.

Further, dealers having an annual turnover of more than Rs 1.50 Crores but less than Rs 5 Crores are required to use 2 Digit HSN Codes in their invoices for the goods supplied by them.

Lastly, businesses having an annual turnover of less than Rs 1.50 Crores are not required to mention HSN Code in their invoices for the commodities sold by them.

However, businesses undertaking import or export of goods are required to mention the complete 8 Digit HSN Codes necessarily. This is done so as to comply with the international standards and practices.

How are products classified under HSN code?

The HSN Code Structure is divided into various sections, chapters, headings and sub-headings. Thus, the HSN Code structure contains 21 sections, 99 Chapters, around 1,244 headings and 5,224 sub-headings in total.

Each section has a number of chapters that set out codes for a specific class or category of goods.

Then, each of the chapters and sub-chapters contain particular class of goods that relate with the nature of goods of its Section.

Finally, every Chapter is divided into a number of heading and sub-headings. These headings and subheadings depend upon the various types of goods covered under each Chapter.

Why is HSN important under GST?

Under GST, the return filing is completely automated. Therefore, it will be quite challenging for taxpayers to upload the description of the commodities supplied by them.

So to avoid such a challenge, the HSN Code System was introduced. Under this system, the HSN Codes are automatically picked up from the registration details of the taxpayer.

Hence, there is no need for the registered taxpayer to upload the detailed description of the commodities sold by him. This will save time and make GST Return filing easy.

Therefore, a dealer or a service provider must upload HSN or SAC wise summary of goods or services sold in GSTR-1. This needs to be done in cases where the annual turnover of the dealer or the service provider falls under the relevant slabs mentioned above.

Where should the HSN/SAC code be mentioned?

Under the GST regime, each invoice issued by a supplier of goods or services must have the relevant HSN for the commodities supplied or SAC Code for the services rendered.

Thus, every dealer or service provider must be aware of the HSN Code List as well as SAC Code List for all the goods or services that they are dealing in and on which GST is applicable.

All Topics

 

 

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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