Table of Contents
What Is HSN Code?
HSN code stands for Harmonized System Nomenclature. It’s a globally used 6-digit code that acts as a recognized system for classifying goods. Think of it as a universal product ID for international trade.
This code simplifies the taxation process within the goods and services tax framework by categorising goods under a single umbrella.
Read More About: HSN and SAC Code
What is GST HSN Code in India?
In India, the HSN Code is an extended 8-digit system for classifying goods under the GST regime. It builds upon the global 6-digit HSN code by adding two more digits for further product categorization.
This GST HSN code system serves two key purposes::
- Streamlined Taxation: The HSN code helps identify the specific product category, which directly determines the applicable GST rate. This simplifies tax calculation and administration for businesses..
- International Trade: The HSN code acts as a universal product identifier, ensuring consistent classification across borders. This facilitates smoother international trade by eliminating confusion over product categorization.
HSN codes are an essential tool for businesses and international trade in India.
GST HSN Code Example and Format
The Harmonized System of Nomenclature (HSN) is a standardised coding system used to classify goods for taxation purposes.
In India, HSN codes typically have 8 digits.
- The first two digits represent the chapter number
- The next two digits represent the heading number
- The following two digits comprise the sub-heading
- The last two digits are the tariff item
For example, the HSN code for Handkerchiefs made of Textile matters is 62139010.
- The first two digits (62) here represent the chapter number for Articles of apparel and clothing accessories.
- The next two digits (13) represent the heading number for handkerchiefs.
- And the subsequent next two digits (90) are the product codes for handkerchiefs made of other textile materials.
- However, in India, the last two digits represent a deeper classification, so if the handkerchiefs are made of man-made fibre, then the HSN code is 62139010.
HSN Code List with GST Rates: Chapter-Wise Distribution of Commodities.
The HSN code list is organised into 21 sections, covering a wide range of commodities.
Here’s a breakdown of the chapters and the major commodities covered in each:
Section |
Chapter |
Commodities |
HSN Code |
GST Rates (%) |
| I | 01-05 | Live animals; animal products | 0101-0511 | 0%, 5%, 12%, 18% |
| II | 06-14 | Vegetable products | 0601-1404 | 0%, 5%, 12%, 18% |
| III | 15 | Animal or vegetable fats and oils | 1501-1522 | 5%, 12%, 18% |
| IV | 16-24 | Prepared foodstuffs; beverages, spirits and vinegar; tobacco | 1601-2403 | 0%, 5%, 12%, 18%, 28% |
| V | 25-27 | Mineral products | 2501-2715 | 5%, 12%, 18% |
| VI | 28-38 | Products of the chemical or allied industries | 2801-3825 | 0%, 5%, 12%, 18%, 28% |
| VII | 39-40 | Plastics and articles, rubber and articles | 3901-4017 | 12%, 18% |
| VIII | 41-43 | Raw hides and skins, leather, fur skins and articles | 4101-4304 | 5%, 12%, 18% |
| IX | 44-46 | Wood, articles of wood, cork and articles of cork, manufacturers of straw | 4401-4601 | 12%, 18% |
| X | 47-49 | Paper, paperboard, pulp of wood or of other fibrous cellulosic material | 4701-4923 | 12%, 18% |
| XI | 50-63 | Textiles and textile articles | 5001-6310 | 0%, 5%, 12%, 18% |
| XII | 64-67 | Footwear, headgear, umbrellas, sun umbrellas, walking sticks, seat sticks, whips, riding crops and parts thereof | 6401-6702 | 12%, 18% |
| XIII | 68-70 | Ceramic products, glass items, glassware, articles of stone, plaster, cement, asbestos, mica or similar materials; | 6801-7020 | 12%, 18% |
| XIV | 71 | Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal, and articles thereof; imitation jewellery; coin | 7101-7118 | 0%, 3%, 5%, 12%, 18% |
| XV | 72-83 | Base metals and articles of base metal | 7201-8311 | 5%, 12%, 18% |
| XVI | 84-85 | Electrical equipment, Machinery and mechanical appliances, parts thereof | 8401-8548 | 5%, 12%, 18% |
| XVII | 86-89 | Vehicles, aircraft, vessels and associated transport equipment | 8601-8716 | 12%, 18%, 28% |
| XVIII | 90-92 | Clocks and watches, musical instruments, Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, | 9001-9209 | 12%, 18% |
| XIX | 93 | Arms and ammunition; parts and accessories thereof | 9301-9306 | 12% |
| XX | 94-96 | Miscellaneous manufactured articles | 9401-9617 | 12%, 18% |
| XXI | 97 | Works of art, collectors’ pieces and antiques | 9701-9706 | 12% |
Read About: List of Goods and Service Tax (GST) Rates
Why is the GST HSN Code Important?
The HSN is a systematic and logical classification system developed by the World Customs Organization to categorise goods worldwide.
1. Systematic Classification
The primary purpose of the HSN is to systematically and logically classify goods worldwide, enabling a uniform identification system.
2. Cross-Border Trade Facilitation
The standardised HSN codes facilitate consistency in international trade, enhancing the efficiency of cross-border trade processes.
3. Accurate Tax Calculation
HSN codes help precisely identify products, enabling the application of the correct GST rates. This ensures accurate tax calculation and minimises the risk of errors.
4. Compliance Requirement
Including HSN codes on invoices is a regulatory requirement under India’s Goods and Services Tax (GST) system, ensuring proper reporting and compliance.
5. Efficient Data Management
HSN codes are used for efficient data management, streamlining businesses’ documentation and reporting processes.
6. Inventory Management
Businesses can use HSN codes to effectively manage their inventory by categorising and tracking products systematically, leading to better control and organisation.
7. Reduced Ambiguity
The standardised HSN codes reduce ambiguity in product classification, helping businesses and tax authorities alike to clearly identify and understand the nature of goods or services being traded.
Who Should Use the GST HSN Code?
Under the GST regime, most dealers are required to adopt a two, four, or eight-digit HSN Code for trading in commodities, depending on the previous year’s turnover.
- Dealers having a turnover of less than 1.5 crore rupees in their previous year need not adopt the HSN code for their commodities.
- Dealers with turnover ranging from 1.5 crores to 5 crore rupees are required to use a two-digit HSN Code for their commodities.
- Dealers having turnover of more than 5 crore rupees shall be required to adopt a four-digit HSN Code
- For imports or exports, it is mandatory to have an eight-digit HSN Code, irrespective of the turnover as the GST HSN Code must be compatible with applicable international practices and standards.
Related Read: How to Register for GST Online: A Guide to GST Registration Process
How Can Businesses Implement HSN Codes in their Process?
1. Product Categorisation
Analyse your product or service offerings and categorise them based on their characteristics and nature.
2. Understand HSN Code Structure
Familiarise yourself with the structure of the HSN code list in GST and its components to accurately assign codes to your products.
3. Training and Awareness
Train relevant department and staff members on the importance of HSN codes, their role in GST compliance, and how to assign them to products. This will ensure that everyone agrees on HSN code usage.
4. Integration with ERP Systems
Integrate GST HSN code into your Enterprise Resource Planning (ERP) systems to ensure seamless implementation and automated coding. This reduces the chances of human error and increases efficiency.
5. Regular Updates
Stay informed about GST rates 2024 and changes or updates to HSN codes, for updating your systems and processes accordingly.
6. Incorporate HSN Codes in Invoices
Ensure that GST HSN code rates are included on invoices for all goods and services supplied, as this is a mandatory requirement for GST compliance.
7. Cross-Functional Collaboration
Collaborate with departments such as finance, sales, and IT to ensure a coordinated effort in implementing HSN codes.
8. Review and Audit
Conduct regular reviews and audits of the implementation of your HSN code for GST to identify any discrepancies or areas for improvement.
9. Documentation and Record-keeping
Maintain accurate records of HSN codes assigned to products and services for future reference and audit purposes.
10. Engage with Suppliers and Vendors
Implement effective communication strategies with suppliers and vendors to maintain consistency in HSN code application across the supply chain.
11. Compliance Checks
Regularly check that your HSN code implementation aligns with the latest GST regulations and compliance requirements.
12. Seek Professional Advice
Consult with tax professionals or experts to address any specific challenges or questions related to HSN code implementation.
Related Read: GST State Code List and Jurisdictions in 2024
Conclusion
The decision to move to the online taxation system and implement the HSN code under GST for the classification of goods liable for taxation has brought about a complete reform in the country’s taxation system. However, the government is trying to make the transition process even more transparent. For this, many goods are being shifted from one slab to another depending on their usage and the trade. Though it may require some preparation work for professionals to effect such a transition, there are various automated GST compliance solutions to support the process.
Frequently Asked Questions (FAQs)
1. What is HSN Code in GST?
The HSN Code (Harmonized System of Nomenclature) in GST is an 8-digit code that classifies goods. It helps identify products for applying the correct GST rate and simplifies international trade.
2. How to add the HSN code in the GST portal?
To add an HSN code in the GST portal, you need to enter the appropriate 8-digit HSN code for each product or service you supply. This information is required when filing GST returns.
3. Is the HSN code 6-digit or 8-digit?
In India, the HSN code is usually 8 digits long. The first two digits represent the chapter, the next two digits denote the heading, and the final four digits specify the sub-heading and tariff item.
4. Is the HSN Code required during GST return filing?
HSN codes are required during GST return filing for businesses with turnover above specified thresholds.
5. Is it mandatory to use the HSN code for every business transaction?
Yes, it is mandatory to use the HSN code for all goods and the SAC code for all services in every business transaction under the GST regime. The requirement varies based on the turnover of the business.
6. How can I find the correct HSN code for my product or service?
You can use the GST HSN code lookup tool or refer to the comprehensive HSN code list published by the government to find the correct HSN code for your product or service.
7. Are there any penalties for using the wrong HSN code in my business transactions?
Yes, there can be penalties for using the wrong HSN code, as it can lead to incorrect tax calculation and non-compliance with GST regulations. The penalties can include fines and other legal implications.
8. Is the HSN code list the same for all countries, or does it vary internationally?
The HSN code system is an international standard developed by the World Customs Organization (WCO), but the specific codes and their applications may vary slightly between countries.
9. How often is the HSN code list updated, and how can I access the latest version?
The WCO and the Indian government periodically update the HSN code list. The latest version is available on the official websites of the Central Board of Indirect Taxes and Customs (CBIC) and other government portals.
10. What is the Purpose of adopting the GST HSN Code in India?
The GST HSN Code in India aims for uniformity in taxing merchandise, aligning with other countries following the HSN system. This standardisation simplifies GST taxation and reduces international trade costs.
