What is the HSN Code in GST?

HSN Code in GST

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.

What is HSN Code?

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.

How Does HSN Code Work?

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.

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HSN Code Importance

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:

  • An HSN code is mandatory for GST-registered businesses.
  • It classifies goods for the purpose of invoicing and tax calculation.
  • It determines the applicable GST rate for various products, ensuring correct tax calculation and compliance.

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.

Read Also- What is GST (Goods & Services Tax)? Meaning & Types of GST Returns

Use of HSN Code in GST

Here is a list of HSN code uses in GST:

  • To categorise products and understand their structures.
  • To conduct regular updates on GST rate changes.
  • To ensure GST compliance.
  • To maintain records and engage with vendors and suppliers.
  • To ensure compliance in reviews and audits when required.

Example of HSN Code

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.

Structure of HSN Code

The HSN code has a systematic 6-digit or 8-digit structure to easily identify a category of goods. It is as follows:

  • The first and second digits represent the HSN chapter.
  • The third and fourth digits represent the HSN heading.
  • The fifth and sixth digits signify the HSN sub-heading.
  • The seventh and eighth digits indicate further classification or tariff items.

Each additional digit increases the level of detail in the product classification. The higher the number of digits, the more specific the classification becomes.

Read Also- GST Registration Online: Meaning, Benefits, Eligibility and Documents

Services Accounting Code (SAC) in GST

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.

What is the Difference Between an HSN Code and a SAC Code?

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.

AspectHSN CodeSAC Code
DefinitionUsed for classifying goods under GSTUsed for classifying services under GST
StructureComprises 6 to 8 digitsTypically a 6-digit numeric code
BasisFollows the World Customs Organisation's systemBased on the United Nations' classification
ApplicabilityApplicable to all goodsApplicable to all services rendered in India
Tax SlabsGoods taxed under various GST slabsServices taxed under five GST slabs (0%, 5%, 12%, 18%, 28%)

How to Generate HSN Code?

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.

  • Navigate to HSN Code Setup: Go to Tax > Setup > Sales Tax > India > HSN Code.
  • Create a New Record: Select the option to create a new record for the HSN code.
  • Input Values: Enter a value in the Chapter, Heading, and Subheading fields.
  • Add Additional Information: Fill in the Country/Region Extension and Statistical Suffix fields with appropriate values.
  • Save and Verify: Save the record and confirm that the HSN code field is updated correctly.
  • Final Touch: In the Description field, provide a detailed description and then select Close.

Read Also- GST and It's Various Facets

Declaration of HSN Code for Goods and Services

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.

Why is HSN Important Under GST?

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.

  1. Streamlined Process: HSN codes simplify the GST framework, making it systematic and aligned with global practices.
  2. Reduced Documentation: By using HSN codes, businesses can avoid lengthy descriptions of goods, streamlining the filing process.
  3. Time Efficiency: This coding system saves time, as GST returns can be filed more easily with automated processes.
  4. Mandatory Reporting: Dealers and service providers must summarise their sales using HSN/SAC codes in GSTR-1 if their turnover exceeds specified thresholds.
  5. Enhanced Clarity: HSN codes provide a clear and concise classification of goods, facilitating better compliance and reducing the chances of errors.

Read Also- What are the Benefits of Getting a GST Business Loan?

Chapter Wise Distribution of Goods Using HSN Codes

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 1Live animals and poultry
Chapter 2Animal meat and edible offals
Chapter 3Fish, fillets, and other aquatic meats
Chapter 4Honey, eggs, and dairy products
Chapter 5Inedible animal products (unspecified)
Chapter 6Flowers, live trees, and plants
Chapter 7Vegetables
Chapter 8Fruits
Chapter 9Tea, coffee, and spices
Chapter 10Cereals and grains
Chapter 11Milling industry products
Chapter 12Medicinal plants, seeds, and fruits
Chapter 13Lac, gums, resins, and vegetable extracts
Chapter 14Vegetable products (unspecified)
Chapter 15Oils, fats, and animal products
Chapter 16Prepared or preserved fish and aquatic vertebrates
Chapter 17Sugar, confectionery, and bubble gums
Chapter 18Cocoa and cocoa products
Chapter 19Pastry, pizza, bread, and waffles
Chapter 20Fruit juices, jams, and jellies
Chapter 21Edible preparations including tea and coffee
Chapter 22Non-alcoholic beverages and vinegar
Chapter 23Residual starch products and pellets
Chapter 24Tobacco and related products
Chapter 25Salts and marbles
Chapter 26Mineral ores and concentrates
Chapter 27Coal, petroleum, and fossil fuels
Chapter 28Gases and inorganic chemicals
Chapter 29Hydrocarbons
Chapter 30Blood and pharmaceutical products
Chapter 31Fertilisers and unspecified products
Chapter 32Colouring and tanning products
Chapter 33Cosmetics and oils
Chapter 34Soaps and waxes
Chapter 35Glues and enzymes
Chapter 36Industrial explosives and fireworks
Chapter 37Photographic and cinematographic goods
Chapter 38Chemicals and clinical wastes
Chapter 39Plastic products
Chapter 40Rubber and rubber products
Chapter 41Skins and rawhides
Chapter 42Leather products such as bags and wallets
Chapter 43Raw and artificial fur products
Chapter 44Wood products and charcoal
Chapter 45Natural and shuttlecock cork
Chapter 46Basketware and wickerwork
Chapter 47Wood pulp
Chapter 48Paper and paperboard
Chapter 49Printed materials such as books and newspapers
Chapter 50Silk
Chapter 51Animal hair and woven fabrics
Chapter 52Cotton
Chapter 53Paper yarn and fabrics made from vegetable fibres
Chapter 54Man-made filaments
Chapter 55Man-made staple fibres
Chapter 56Cables, ropes, and non-woven products
Chapter 57Carpets and textile floor coverings
Chapter 58Fabrics, lace, and tapestries
Chapter 59Coated and laminated textiles
Chapter 60Knitted or crocheted fabrics
Chapter 61Knitted clothing accessories
Chapter 62Non-knitted clothing accessories
Chapter 63Other textile articles and worn clothing
Chapter 64Footwear and parts
Chapter 65Headgear
Chapter 66Umbrellas and walking sticks
Chapter 67Wigs and artificial flowers
Chapter 68Cement and construction materials
Chapter 69Ceramic products
Chapter 70Glassware
Chapter 71Precious metals like gold and silver
Chapter 72Iron and steel products
Chapter 73Railway tracks and iron tubes
Chapter 74Copper products
Chapter 75Nickel products
Chapter 76Aluminium products
Chapter 77Reserved for future use
Chapter 78Lead products
Chapter 79Zinc products
Chapter 80Tin products
Chapter 81Base metals like cobalt and magnesium
Chapter 82Agricultural tools and cutlery
Chapter 83Locking devices and base metal products
Chapter 84Industrial machinery and tools
Chapter 85Electrical and electronic products
Chapter 86Railway machinery
Chapter 87Motor vehicles
Chapter 88Aircraft and satellites
Chapter 89Ships and cargo vessels
Chapter 90Medical equipment and optical devices
Chapter 91Watches and clocks
Chapter 92Musical instruments
Chapter 93Military weapons
Chapter 94Household furniture and products
Chapter 95Toys and sports goods
Chapter 96Writing instruments and educational equipment
Chapter 97Arts and antiques
Chapter 98Passenger baggage and laboratory chemicals
Chapter 99Services

This classification not only aids in tax administration but also facilitates international trade by standardising product identification.

How to find Product in HSN list and its Relevant HSN Code?

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.

Read Also- Structure of GST in India: Breakdown of the Four-Tier System

Importance of HSN Code in Business Loan Applications

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 regulationsAn HSN code is mandatory for tax invoices. It streamlines transactions, reduces errors, and ensures accurate tax calculations.
Streamlined OperationsWith HSN codes, businesses can determine the applicable GST rates, simplify imports and exports, and claim benefits.
Better Financial ManagementBusinesses can use the code to improve financial management and simplify tax assessment.

Steps to Apply for a Business Loan

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.

Read Also- Direct Tax & Indirect Tax: Differences, Types, and Benefits

Conclusion

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.

Frequently Asked Questions of HSN Code

Who will give HSN code?

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.

Is the HSN Code mandatory for all businesses?

HSN codes are mandatory for GST-registered businesses with a turnover exceeding Rs 1.5 crore.

What happens if I use the wrong HSN Code?

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.

How does the HSN Code relate to financial services like loans?

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.

What is the full form of HSN?

The full form of HSN is Harmonised System of Nomenclature.

Who is eligible for HSN code in GST?

All registered taxpayers under GST, regardless of their turnover, are eligible to use HSN codes for goods and services.

Where are HSN codes required to be mentioned?

HSN codes must be mentioned on GST invoices, tax returns, and other relevant documents for the sale of goods and services.

Is HSN code 4 digit or 8 digit?

HSN codes can be 4, 6, or 8 digits long, with the first 4 digits being mandatory under GST.

What is 4 digit and 6 digit HSN code?

A 4-digit HSN code represents the chapter level of goods, while a 6-digit HSN code provides further classification within that chapter.

What are SAC codes?

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.

What is HS and HSN code?

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.

How to add HSN code in the GST portal?

To add HSN code in the GST portal, navigate to the "HSN/SAC" section under the "Tax" tab and enter the relevant details.

Is HSN code mandatory for GST invoice?

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.

Is a GST bill valid without HSN code?

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.

Are HSN codes the same across all countries?

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.

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Written by  Katyaini Kotiyal

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Katyaini is a finance expert with a focus on the non-banking financial sector, bringing over 8 years of experience in NBFC. She specializes in simplifying complex financial concepts for readers, helping them navigate the NBFC landscape. Outside of work, she is passionate about travelling.

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