The World Customs Organisation developed the HSN code system to smoothen international trade. If your business moves goods across the border, understanding what is the HSN code in GST is important. Whether you are an experienced business owner or just entering the world of exports, you must know the classification system of goods.
The following sections will break down what the HSN code is, its workings, importance, benefits, uses, examples, structure, etc.
The HSN code in GST stands for ‘Harmonised System Nomenclature.’ The World Customs Organisation developed this code to classify goods in a systematic manner. This multipurpose product nomenclature system first came into effect in 1988 to make trade more efficient. It can be a 6 or 8-digit code assigned to each of the 5,000 groups of commodities.
Now that you know what the HSN code is in GST, it's time to understand how it works. It classifies over 5,000 commodity groups arranged in a logical structure. The well-defined rules that give the products their uniform classification are acceptable worldwide. The code system is widely accepted for taxation, as it identifies the tax rates for specific products, including imports and exports, through a nation.
While the primary purpose of an HSN code is to classify goods, it also gathers data and resolves issues in the international trade system. It is important for the following reasons:
Most countries participate in the HSN system. Its use reduces errors and streamlines operations, promoting high efficiency and cost-effectiveness in global trade and taxation processes.
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Here is a list of HSN code uses in GST:
Here is an example of the HSN code for cotton T-shirts. The HSN code in GST for cotton T-shirts is 610910. Here is an explanation:
The HSN code accurately categorises cotton T-shirts for GST returns. The first two digits, 61, represent the chapter "Articles of Apparel and Clothing Accessories, Knitted or Crocheted." The following two digits, 09, represent the heading "T-shirts, singlets, and other vests, knitted or crocheted." The final two digits, 10, further specify the item as made of cotton. Using the correct code eases the GST return filing process, which business owners use to ensure accuracy and compliance in their transactions.
The HSN code has a systematic 6-digit or 8-digit structure to easily identify a category of goods. It is as follows:
Each additional digit increases the level of detail in the product classification. The higher the number of digits, the more specific the classification becomes.
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The Services Accounting Code (SAC) is applicable to all services rendered in India. This system is crucial for classifying, measuring, and determining the applicability of GST for services. While the HSN code is used for classifying goods and follows the global classification system by the World Customs Organisation, the SAC code is based on the United Nations' classification and has been tailored by the CBIC for the Indian context.
Under the GST regime, services are categorised under SAC codes, which are taxed across five slabs: 0%, 5%, 12%, 18%, and 28%. Services that do not fall under the SAC list are subject to an 18% GST levy.
HSN and SAC codes are essential for the classification of goods and services under the GST regime in India. While both serve to categorise items for taxation, they have distinct applications and formats.
Aspect | HSN Code | SAC Code |
Definition | Used for classifying goods under GST | Used for classifying services under GST |
Structure | Comprises 6 to 8 digits | Typically a 6-digit numeric code |
Basis | Follows the World Customs Organisation's system | Based on the United Nations' classification |
Applicability | Applicable to all goods | Applicable to all services rendered in India |
Tax Slabs | Goods taxed under various GST slabs | Services taxed under five GST slabs (0%, 5%, 12%, 18%, 28%) |
Generating an HSN code is essential for businesses dealing with goods under the Goods and Services Tax (GST) regime. The process involves following a systematic approach to ensure accurate classification.
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The declaration of HSN code for goods and services is crucial for businesses under the GST regime in India. It ensures accurate classification, helping to determine applicable tax rates. Proper declaration facilitates compliance, reduces tax-related discrepancies, and enhances transparency in financial reporting and transactions.
HSN codes play a vital role in the GST system, ensuring proper classification and taxation of goods. Their importance extends to various aspects of compliance and reporting.
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Goods and services under the GST regime are systematically categorised into 21 sections and 99 chapters, further divided into 1,244 subheadings. Each chapter corresponds to specific categories, facilitating the identification of applicable GST rates for various goods. Here’s an overview of some key chapters:
Chapter No. | Description |
Chapter 1 | Live animals and poultry |
Chapter 2 | Animal meat and edible offals |
Chapter 3 | Fish, fillets, and other aquatic meats |
Chapter 4 | Honey, eggs, and dairy products |
Chapter 5 | Inedible animal products (unspecified) |
Chapter 6 | Flowers, live trees, and plants |
Chapter 7 | Vegetables |
Chapter 8 | Fruits |
Chapter 9 | Tea, coffee, and spices |
Chapter 10 | Cereals and grains |
Chapter 11 | Milling industry products |
Chapter 12 | Medicinal plants, seeds, and fruits |
Chapter 13 | Lac, gums, resins, and vegetable extracts |
Chapter 14 | Vegetable products (unspecified) |
Chapter 15 | Oils, fats, and animal products |
Chapter 16 | Prepared or preserved fish and aquatic vertebrates |
Chapter 17 | Sugar, confectionery, and bubble gums |
Chapter 18 | Cocoa and cocoa products |
Chapter 19 | Pastry, pizza, bread, and waffles |
Chapter 20 | Fruit juices, jams, and jellies |
Chapter 21 | Edible preparations including tea and coffee |
Chapter 22 | Non-alcoholic beverages and vinegar |
Chapter 23 | Residual starch products and pellets |
Chapter 24 | Tobacco and related products |
Chapter 25 | Salts and marbles |
Chapter 26 | Mineral ores and concentrates |
Chapter 27 | Coal, petroleum, and fossil fuels |
Chapter 28 | Gases and inorganic chemicals |
Chapter 29 | Hydrocarbons |
Chapter 30 | Blood and pharmaceutical products |
Chapter 31 | Fertilisers and unspecified products |
Chapter 32 | Colouring and tanning products |
Chapter 33 | Cosmetics and oils |
Chapter 34 | Soaps and waxes |
Chapter 35 | Glues and enzymes |
Chapter 36 | Industrial explosives and fireworks |
Chapter 37 | Photographic and cinematographic goods |
Chapter 38 | Chemicals and clinical wastes |
Chapter 39 | Plastic products |
Chapter 40 | Rubber and rubber products |
Chapter 41 | Skins and rawhides |
Chapter 42 | Leather products such as bags and wallets |
Chapter 43 | Raw and artificial fur products |
Chapter 44 | Wood products and charcoal |
Chapter 45 | Natural and shuttlecock cork |
Chapter 46 | Basketware and wickerwork |
Chapter 47 | Wood pulp |
Chapter 48 | Paper and paperboard |
Chapter 49 | Printed materials such as books and newspapers |
Chapter 50 | Silk |
Chapter 51 | Animal hair and woven fabrics |
Chapter 52 | Cotton |
Chapter 53 | Paper yarn and fabrics made from vegetable fibres |
Chapter 54 | Man-made filaments |
Chapter 55 | Man-made staple fibres |
Chapter 56 | Cables, ropes, and non-woven products |
Chapter 57 | Carpets and textile floor coverings |
Chapter 58 | Fabrics, lace, and tapestries |
Chapter 59 | Coated and laminated textiles |
Chapter 60 | Knitted or crocheted fabrics |
Chapter 61 | Knitted clothing accessories |
Chapter 62 | Non-knitted clothing accessories |
Chapter 63 | Other textile articles and worn clothing |
Chapter 64 | Footwear and parts |
Chapter 65 | Headgear |
Chapter 66 | Umbrellas and walking sticks |
Chapter 67 | Wigs and artificial flowers |
Chapter 68 | Cement and construction materials |
Chapter 69 | Ceramic products |
Chapter 70 | Glassware |
Chapter 71 | Precious metals like gold and silver |
Chapter 72 | Iron and steel products |
Chapter 73 | Railway tracks and iron tubes |
Chapter 74 | Copper products |
Chapter 75 | Nickel products |
Chapter 76 | Aluminium products |
Chapter 77 | Reserved for future use |
Chapter 78 | Lead products |
Chapter 79 | Zinc products |
Chapter 80 | Tin products |
Chapter 81 | Base metals like cobalt and magnesium |
Chapter 82 | Agricultural tools and cutlery |
Chapter 83 | Locking devices and base metal products |
Chapter 84 | Industrial machinery and tools |
Chapter 85 | Electrical and electronic products |
Chapter 86 | Railway machinery |
Chapter 87 | Motor vehicles |
Chapter 88 | Aircraft and satellites |
Chapter 89 | Ships and cargo vessels |
Chapter 90 | Medical equipment and optical devices |
Chapter 91 | Watches and clocks |
Chapter 92 | Musical instruments |
Chapter 93 | Military weapons |
Chapter 94 | Household furniture and products |
Chapter 95 | Toys and sports goods |
Chapter 96 | Writing instruments and educational equipment |
Chapter 97 | Arts and antiques |
Chapter 98 | Passenger baggage and laboratory chemicals |
Chapter 99 | Services |
This classification not only aids in tax administration but also facilitates international trade by standardising product identification.
Visit the convenient HSN Calculator to easily discover the HSN codes for various goods and SAC codes for services. You can also search HSN chapter by digit for quick access to specific classifications. This tool streamlines the process, making it simpler to navigate through the vast array of codes under GST.
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Check the HSN code before applying for a Business Loan. With assured regulatory compliance, it properly classifies commodities. Although not directly linked to loan approval, ensuring proper classification can aid in compliance and accurate tax reporting, which indirectly supports business credibility. Here is how the HSN code is important to get a Business Loan:
Compliance with GST regulations | An HSN code is mandatory for tax invoices. It streamlines transactions, reduces errors, and ensures accurate tax calculations. |
Streamlined Operations | With HSN codes, businesses can determine the applicable GST rates, simplify imports and exports, and claim benefits. |
Better Financial Management | Businesses can use the code to improve financial management and simplify tax assessment. |
Follow this stepwise procedure to get a Business Loan online from Hero FinCorp:
Step 1- Visit the Business Loan page on the Hero FinCorp website and click Apply Now.
Step 2- Fill in the required fields and upload relevant documents.
Step 3- Enter the desired loan amount and tenure.
Step 4- If you meet the criteria, you will receive a reference number.
Step 5- A representative will contact you for any additional information.
Step 6- After verification, you will receive a personalised loan offer.
Step 7- Once accepted, the loan amount will be disbursed to your bank account.
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The HSN code in GST plays a crucial role in ensuring tax compliance and facilitating international trade. It provides a standard method to classify goods globally, improving tax efficiency and accurate calculation while enhancing overall financial management.
To further streamline your business finances, consider a Business Loan of up to Rs 40 Lakh from Hero FinCorp. These unsecured loans come with competitive interest rates and require no collateral, offering the flexibility needed to manage or expand your operations effectively.
The World Customs Organisation (WCO) develops and maintains the HSN codes, which are used globally for trade classification. However, HSN codes are assigned by individual countries based on the WCO framework.
HSN codes are mandatory for GST-registered businesses with a turnover exceeding Rs 1.5 crore.
If you use the wrong HSN code, you may face penalties. Depending on the error's nature and impact, fines up to Rs 25,000 under CGST and SGST each can be imposed.
HSN codes ensure proper tax classification and compliance, essential for accurate tax reporting. While not directly impacting loan approvals, maintaining compliance can positively affect a business's credibility and stability.
The full form of HSN is Harmonised System of Nomenclature.
All registered taxpayers under GST, regardless of their turnover, are eligible to use HSN codes for goods and services.
HSN codes must be mentioned on GST invoices, tax returns, and other relevant documents for the sale of goods and services.
HSN codes can be 4, 6, or 8 digits long, with the first 4 digits being mandatory under GST.
A 4-digit HSN code represents the chapter level of goods, while a 6-digit HSN code provides further classification within that chapter.
SAC codes, or Service Accounting Codes, are unique identifiers used to classify and categorise services under the Goods and Services Tax (GST) system in India.
HS (Harmonised System) code is a standardised numerical method for classifying traded products, while HSN (Harmonised System Nomenclature) code is the 8-digit code derived from the HS code used in GST for tax purposes.
To add HSN code in the GST portal, navigate to the "HSN/SAC" section under the "Tax" tab and enter the relevant details.
Yes, HSN code is mandatory for GST invoices if the turnover exceeds Rs 1.5 crore in the previous financial year. For businesses with a turnover below this threshold, it is optional.
A GST bill may be valid without an HSN code for businesses with a turnover below Rs 1.5 crore in the previous financial year. However, it is mandatory for those exceeding this threshold.
No, while HSN codes are based on a common international framework developed by the World Customs Organisation (WCO), individual countries may have variations or additional digits to further classify goods according to their own regulations.