HSN, full form ‘Harmonized System of Nomenclature’ is a multipurpose international product nomenclature developed by the World Customs Organisation.
With the introduction of Goods and Services Tax (GST) regime, there is a need for a more uniform classification not only at the national level but also at the international level too. Therefore, India has adopted the Harmonized System of Nomenclature (HSN) for goods and the Service Accounting Code (SAC) system for services.
Under GST, the HSN codes are meant for most of the business entities. They need to mention two-, four-, or eight-digit HSN codes for their products, by their turnover for the previous year and the nature of the transaction (as in Import/Export).
|Turnover||HSN codes for commodities|
|Less than Rs 1.5 crores||No HSN code required|
|Between Rs 1.5 crores and Rs 5 crores||Two-digit HSN codes|
|Above Rs 5 crores||Four-digit HSN codes|
In case of imports/exports, use of eight-digit HSN codes shall be mandatory for the simple reason that GST should be compatible with international standards and practices.
Adoption of HSN will bring India at par with rest of the countries of the world that are following the Harmonized System of Nomenclature after the introduction of GST. The HSN code will make GST systematic and globally accepted. It will lead to harmonisation of customs and trade procedures, thereby minimising the costs related to international trade. On entering the HSN codes, the system will automatically pick up the related tax rates of the commodities under the GST regime, thus simplifying the trade procedures. Hence, it is important to mention the correct HSN codes during enrollment or registration under GST.
HSN comprises Sections, Chapters, Headings and Sub-headings. Sections and chapters are arranged either in order of a product’s degree of manufacture or according to its technological complexity.
There are a set of 6 rules for classifying goods known as the General Interpretative Rules or the general rules for the interpretation of the Harmonized System. Rules 1 to 4 are related and therefore must be applied in sequence. Rules 5 and 6 may be applied as needed.
Example: If you want to search for the heading of switches, first of all, you will look after the Chapter then for the Heading then for Sub-heading and lastly for Tariff item and accordingly you shall be able to derive HSN.
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