HSN Codes

Last Update Date : August 16, 2018

The nation’s biggest and revolutionary tax regime GST (Goods and Services Tax) has already become a reality. Boasted as the most rebellious tax reform in the country after independence, GST is expected to curb transactional costs by introducing a unified tax system stirring economic growth in the long run.
To reduce the hardship of taxpayer and all the chaos that can arise in the near future, the system has adopted HSN widely known as the Harmonized System of Nomenclature. This comprehensive guide by H&R Block will help you understand in depth about the same.

What is HSN?

HSN, or ‘Harmonized System of Nomenclature’ is a multipurpose international product nomenclature developed by the World Customs Organisation (WCO) in 1988 and since then 5 revisions has been taken place. Currently, HS Code 2017 revision is being used in the world. In India, it is normally used to categorize a product in the business. It includes 233 sets of amendments, divided as follows: agricultural sector 85; chemical sector 45; wood sector 13; textile sector 15; base metal sector 6; machinery sector 25; transport sector 18; other sectors 26. Importers, Exporters and Custom House Agents are therefore requested to ensure that the classification of goods is in accordance with HSN 2017 while filing the Customs declarations for the goods to be imported or exported from 01-01-2017.

What is the Need for HSN in India?

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.

Whom is HSN Code Meant for?

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.

What is the Purpose of Adopting the Harmonized System of Nomenclature in India?

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.

Classification of HSN

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.

  • Each section is a collection of various chapters, where sections represent a broader class of goods while the chapters denote a particular class of goods.
  • Each chapter is further divided into several headings depending upon different types of goods belonging to the same class.
  • Each heading comprises products that are assigned an HSN code.
  • However, India and some other countries use eight-digit codes for better and more profound classification.

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.

  • Rule 1: Titles of sections, chapters, and sub-chapters are provided for ease of reference only. For the sake of legal purposes, refer to headings and sub-headings to drive classification.
  • Rule 2a: Goods that are incomplete/unfinished but, have the characteristics of the finished product, the classification for such goods is same as that of the finished product (provided classification is known). The heading shall also include removed/unassembled or disassembled parts (i.e., SKD/CKD).
  • Rule 2b: If two components of a mixture are seen in isolation, they will have a different heading, but mixture as such can have a different HSN.
  • Rule 3a: The specific heading of a product shall be considered over the general heading for that product. e.g., milk is considered as a product attracting 0% tax under GST. However, a beverage made up of milk has a specific HSN 2202 90 30, which attracts 12% tax under GST, so here specific heading for milk beverage shall prevail over the general heading of milk.
  • Rule 3b: If the mixture does not have a specific heading then the component that gives such mixture its essential character shall be considered for deriving HSN.
  • Rule 3c: If two headings are equally suited for a single product, then the heading which comes last in the numerical order shall be selected.
  • Rule 4: If goods cannot be classified as per the above rules, these are to be classified according to the goods to which they are most akin.
  • Rule 5: Containers designed explicitly for the article and suitable for long-term use will be classified along with that article, if such articles are normally sold along with such cases. For example, a goggle case would fall under goggles.
  • Rule 6: Packing materials and containers are also to be classified with the related goods except when the packing is for repetitive use.

How to Derive HSN of an Item?

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.

HSN – wise summary of outward supplies

Sections

 

HSN code list
Section 1 Live Animals, Animal Products
Section 2 Vegetable Products
Section 3 Animal or Vegetable Fats and Oils and their cleavage products, prepared edible fats, Animal or Vegetable waxes
Section 4 Prepared Foodstuffs, Beverages, Spirits and Vinegar, Tobacco and Manufactured Tobacco Substitutes
Section 5 Mineral Products
Section 6 Product of the chemicals or allied Industries
Section 7 Plastics and articles thereof, Rubber and articles thereof
Section 8 Raw hides and skins, Leather, Furskins and articles thereof, saddlery and harness, travel goods, handbags and similar containers, articles of animal gut ( other than silk-worm gut )
Section 9 Wood and articles of wood, Wood charcoal, Cork and articles of cork, Manufacturers of straw, of Esparto or of other Plaiting Materials, Basketwork and Wickerwork
Section 10 Pulp of wood or of other Fibrous Cellulosic Material, Recovered ( Waste and scrap ) paper or paperboard, paper and paperboard and articles thereof
Section 11 Textile and textile articles
Section 12 Footwear, Headgear, Umbrellas, Sun Umbrellas, Walking-sticks, seat-sticks, whips, riding-crops and parts thereof, Prepared feathers and articles made therewith, Artificial flowers, Articles of human hair
Section 13 Articles of stone, plaster, cement, asbestos, mica, or similar materials, ceramic products, glass and glassware
Section 14 Natural or cultured pearls, Precious or semi-precious stones, precious metals, Metal clad with precious metal, and articles thereof, Imitation Jewellery, Coins
Section 15 Base Metals and articles of Base Metal
Section 16 Machinery and mechanical appliances, electrical equipment, parts thereof, sound recorders and reproducers, television image and souch recorders and reproducers, and Parts and Accessories of such article
Section 17 Vehicles, Aircraft, Vessels and Associated Transport Equipment
Section 18 Optical, Photographic, Cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, clocks and watches, musical instruments, parts and accessories thereof
Section 19 Arms and ammunition, parts and accessories thereof
Section 20 Miscellaneous Manufactured Articles
Section 21 Works of art, Collectors’ Pieces and antiques

Frequently Asked Questions

1. What is UQC?

Answer: UQC stands for Unique Quantity Code. In simple terms, it is a unit of measurement such as 1 kilogramme of wheat, 1 litre of oil etc.

2. Is HSN code mandatory for all the dealers?

Answer: HSN code isn’t mandatory in the following cases:

  1. Dealers having an annual turnover of less than INR 1.5 Crore
  2. Dealers registered under composition scheme of GST are exempted from the usage of HSN Codes.

3. Why is HSN code important at the time of filing of GST?

Answer: As GST is completely automated, HSN code gets automatically filled from the registration details of the dealer thus, reducing the efforts of the taxpayer thereby.

4. What is the Relation of HSN Code with GST Rate?

Answer: Having correct HSN Code of a product is necessary during return filing for an accurate levy of GST rates on products in India.

How can H&R Block help you?

After the implementation of GST, the tax compliance requirements changed drastically. As a result, several businesses find it challenging to focus on their business while trying to be GST compliant. This is where we come into the picture. Our team of in-house GST experts can help you meet all the GST compliance requirements right from registration and filing of returns to handling notices.

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