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The Harmonized System of Nomenclature (HSN) code is a standardized classification system essential for international trade, taxation, and customs procedures. It enables consistent identification of goods across countries, facilitating smoother global commerce. In this article, we explore the structure, significance, and practical application of HSN codes—especially within the framework of India’s Goods and Services Tax (GST) system
What is the HSN Code?
The HSN Code, or Harmonized System of Nomenclature, is an internationally recognized method of classifying goods. Developed by the World Customs Organization (WCO) in 1988, the HSN system assigns a unique six-digit code to over 5,000 categories of products, ensuring consistent classification of goods across international borders
How Does the HSN Code Work?
The HSN system organizes products into logical, hierarchical groups. Each item is given a six-digit code, with the structure backed by clearly defined rules. This enables uniform classification of goods across countries and industries, simplifying global trade and customs procedures.
Key Objectives of the HSN System:
Create a standard framework for classifying goods worldwide
Facilitate uniformity in tariffs and trade policies
Improve the accuracy of international trade statistics
Global Use of HSN
The HSN system is adopted by over 200 countries and economies. It serves several purposes, including:
Standardized classification of goods
Establishment of customs tariffs
Collection of global trade data
Notably, over 98% of goods in international trade are classified using HSN codes. While the base codes remain consistent globally, countries may extend or slightly modify them to suit specific national requirements.
HSN in India
India has been a member of the WCO since 1971 and adopted the HSN system for Customs and Central Excise purposes. Initially, the country used the standard 6-digit format. To enhance classification precision, India later expanded this to an 8-digit code, catering to specific domestic needs under the Goods and Services Tax (GST) system
Understanding the HSN Code Structure
The HSN code system is highly structured and follows a layered format:
21 Sections – Broad categories of goods
99 Chapters – More specific divisions within sections
1,244 Headings – Narrower classifications
5,224 Subheadings – Detailed product descriptions
Code Breakdown Example:
HSN Code for Handkerchiefs made of textile materials: 62.13.90
62 – Chapter: Articles of apparel and clothing accessories (not knitted or crocheted)
13 – Heading: Handkerchiefs
90 – Subheading: Made of other textile materials
Structure of the HSN Code in India
In India, the Harmonized System of Nomenclature (HSN) code is an 8-digit numerical classification used primarily for trade and taxation purposes under the GST system. The structure is hierarchical and offers increasing levels of detail as more digits are added:
1. First Two Digits – Chapter
These digits represent the broad category or chapter under which a product is classified.
Example: 07 corresponds to Vegetables.
2. Next Two Digits – Heading
The next two digits further define the category by identifying the product group within the chapter.
Example: 0702 refers to Tomatoes.
3. Following Two Digits – Subheading
These digits offer a more detailed classification of the product.
Example: 070200 designates Fresh or Chilled Tomatoes.
4. Last Two Digits – National Subheading (India-specific)
The final two digits are unique to India and are added to accommodate specific domestic needs for trade and taxation.
Example: 07020001 could refer to a particular variety of organic fresh tomatoes (illustrative example).
This 8-digit structure allows for uniform classification while also catering to India’s specific regulatory requirements
Determining HSN Code Descriptions
HSN code descriptions are defined based on specific attributes of a product, such as its weight, type, origin, method of production, and packaging. These factors help classify goods with the necessary level of precision for accurate taxation and compliance.
Example: Sarees
The HSN code for sarees varies depending on the material used, which affects both the chapter number and the tariff item value:
Silk sarees fall under Chapter 50
Cotton sarees are classified under Chapter 52
Even when products share a similar base classification, subtle material differences can lead to variations at the tariff item level.
For instance:
Terylene sarees: HSN Code 54075230
Polyester sarees: HSN Code 54075240
Though both fall under the same 6-digit classification, the final two digits distinguish them for taxation purposes
ITC-HS Codes and Their Division
The ITC-HS (Indian Trade Classification based on Harmonized System) codes play a vital role in India’s trade policy, serving as a framework for regulating imports and exports. These codes are organized into two distinct schedules that specify trade policies:
Schedule I: Import Policies
Purpose: Contains regulations and guidelines governing the import of goods into India.
Example:
HS Code: 96132000
Item Description: Pocket lighters, gas-fueled, refillable
Import Policy: Prohibited
Policy Condition: Imports are allowed free of restrictions if the CIF (Cost, Insurance, and Freight) value is ₹20 or above per lighter.
Schedule II: Export Policies
Purpose: Details the rules and conditions for exporting goods from India.
Example:
HS Code: 01022120 (and related codes)
Item Description: Live pure-bred breeding cows and other cattle/buffaloes
Export Policy: Restricted
Policy Condition: Export allowed only with a valid license.
Key Features of ITC-HS Schedules
Policy Conditions: Each schedule outlines specific conditions such as prohibitions, licensing requirements, or exemptions applicable to import and export of goods.
Customs Duty Rates: These codes help determine the applicable customs duties on goods.
Regulating Authority: The Directorate General of Foreign Trade (DGFT) administers and enforces these schedules, ensuring compliance with India’s trade policies
Why is HSN Important Under GST?
The Harmonized System of Nomenclature (HSN) plays a vital role in the Goods and Services Tax (GST) framework for several key reasons. It helps standardize the classification of goods, ensures accurate taxation, and enhances transparency in business operations.
1. Uniform Classification of Goods
HSN codes provide a consistent and standardized method to classify goods across different industries and businesses. This uniformity reduces disputes and promotes consistent application of tax laws.
2. Accurate Taxation
By precisely categorizing products, HSN codes enable the correct GST rates to be applied, minimizing errors from misclassification and preventing incorrect tax charges.
3. Simplified Compliance
Using predefined HSN codes allows taxpayers to auto-fill product descriptions on invoices, making the invoicing process easier and GST return filing more straightforward.
4. Facilitates International Trade
HSN codes follow the international standards established by the World Customs Organization (WCO). This alignment streamlines import-export procedures and supports consistency in global trade.
5. Efficient Tax Administration
The precise categorization aids tax authorities in monitoring goods movement, detecting tax evasion, ensuring compliance, simplifying audits, and reducing administrative workload.
6. Supports Data-Driven Policy Making
Detailed product classification enables governments to analyze trade data, identify trends, and develop more effective trade and taxation policies.
Practical Applications of HSN in GST
B2B Transactions: Use of HSN codes is mandatory on tax invoices, ensuring clear and transparent business-to-business dealings.
B2C Transactions: Depending on turnover, HSN codes may be optional or required to ensure compliance for higher-value sales.
International Trade: The 8-digit HSN codes are essential for exports and imports, helping maintain consistency with global trade practices
How is the HSN Code Used in India?
In India, the HSN (Harmonized System of Nomenclature) code is an essential classification tool that helps businesses comply accurately with Goods and Services Tax (GST) regulations. Its usage spans several important areas:
1. GST Registration and Compliance
Businesses are required to use HSN codes when registering for GST and while filing GST returns.
HSN codes must be included on invoices and in HSN summaries submitted for tax reporting.
2. Import and Export
For international trade, the ITC-HS code—an 8-digit Indian version of the HSN—is used to classify goods for customs clearance and taxation purposes.
3. Determining GST Rates
HSN codes assist businesses in identifying the correct GST rates applicable to their products, reducing errors and ensuring proper tax payment.
4. Statistical and Administrative Uses
HSN codes streamline tax administration and help government agencies collect and analyze trade data for policy-making and statistical insights.
5. Compliance Benefits
Proper use of HSN codes minimizes errors in tax filings, supports compliance with GST laws, and helps in accurately estimating compliance-related costs.
Declaration of HSN Codes
Declaring HSN codes on tax invoices is mandatory.
The number of digits required depends on the taxpayer’s turnover and the nature of the transaction
HSN Code Declaration Rules (Until 31st March 2021)
| Annual Aggregate Turnover (AATO) | Number of HSN Digits to be Declared |
|---|---|
| Up to ₹1.5 crore | Not mandatory (0 digits) |
| ₹1.5 crore to ₹5 crore | 2 digits |
| More than ₹5 crore | 4 digits |
HSN Code Declaration Rules (Effective from 1st April 2021)
According to CGST Notification No. 78/2020, dated 15th October 2020, the updated rules for HSN code declaration are as follows:
| Annual Aggregate Turnover (AATO) | Type of Invoice Document | Number of HSN Digits to be Declared |
|---|---|---|
| Up to ₹5 crore | Mandatory for B2B tax invoices | 4 digits |
| Optional for B2C tax invoices | 4 digits | |
| More than ₹5 crore | Mandatory for all invoices (B2B & B2C) | 6 digits |
Additional Details:
Turnover Reference:
The turnover considered is from the previous financial year.
Example: For invoices issued in FY 2021-22, the turnover of FY 2020-21 is used to determine HSN declaration requirements.Exports and Imports:
For international trade, declaring the full 8-digit HSN code is mandatory to comply with global trade standards
HSN Code Reporting in GSTR-1
Under GST, reporting HSN codes in GSTR-1 is mandatory to ensure precise classification of goods and services for correct taxation. The requirements vary based on business turnover:
Businesses with turnover up to ₹5 crore:
Must report 4-digit HSN codes for B2B invoices; reporting for B2C invoices is optional.Businesses with turnover above ₹5 crore:
Must report 6-digit HSN codes for all invoices (both B2B and B2C).Exports and Imports:
Reporting the full 8-digit HSN codes is compulsory.
These rules promote compliance, improve transparency, and enhance accuracy in GST return filings
How to Add HSN Code in the GST Portal
Follow these steps to add or update HSN codes on the GST portal:
Log in to the GST Portal
Visit the GST portal and log in using your username and password.Navigate to Registration Amendment
Go to Services > Registration > Amendment of Registration (Non-core Fields) on your dashboard.Access the Goods and Services Tab
Click on the Goods and Services tab from the available options.Select the Goods Tab
Under this tab, you can manage and update the HSN codes for the goods or services you provide.Search and Select the Relevant HSN Code
Use the search bar to find the appropriate HSN chapter—either by entering the HSN code directly or by typing the item name. Choose the correct HSN code from the dropdown list.Save and Continue
Click Save and Continue to confirm your selection. Repeat for any additional goods or services you need to update.Verify and Submit
Complete the verification process by choosing either:Digital Signature Certificate (DSC), or
Electronic Verification Code (EVC).
Finally, submit the amendment request.
Key Points to Remember
Amendments to HSN codes are classified as non-core fields, so GST authority approval is not required.
Always ensure that the selected HSN codes are accurate to avoid compliance issues.
Changes will take effect on the GST portal once your submission is successfully processed
Services Accounting Code (SAC) in GST
Under the GST system, services are classified using Services Accounting Codes (SAC), which function similarly to HSN codes for goods. This standardized classification helps in the clear identification, measurement, and taxation of various services.
Structure of the SAC Code
First Two Digits (99):
These digits are common to all services and indicate that the code relates specifically to services.Next Two Digits:
Represent the major category or type of service.
Example:82stands for legal services.Last Two Digits:
Define the specific nature or sub-category of the service.
Example:13refers to legal documentation and certification services related to patents, copyrights, and intellectual property rights.
Example of SAC Code
998213: Legal documentation and certification services concerning patents, copyrights, and other intellectual property rights
Difference Between HSN Code and HS Code
HSN (Harmonized System of Nomenclature) and HS Code (Harmonized System Code) essentially refer to the same international system for classifying goods, introduced by the World Customs Organization (WCO) in 1988. Both serve as a global standard for systematic product classification, especially in customs and shipping. However, there are some distinctions based on regional use:
Global Usage (HS Code):
The 6-digit HS Codes are internationally recognized and used worldwide for classifying goods in global trade.India-Specific Usage (HSN Code):
In India, these 6-digit HS Codes are known as HSN Codes. India, a WCO member since 1971, originally adopted the 6-digit HSN system for customs and central excise purposes.Extension for Greater Detail (ITC-HS Code):
To improve classification accuracy for trade and taxation, India extended the 6-digit HSN code by adding two extra digits, forming an 8-digit ITC-HS Code (Indian Trade Classification based on Harmonized System).ITC-HS Code vs. HS Code:
The ITC-HS Code retains the same 6-digit HS Code base but adds two additional digits for more detailed classification tailored to Indian trade requirements
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