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.
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.
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.
|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|
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.
Answer: HSN code isn’t mandatory in the following cases:
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.
Answer: Having correct HSN Code of a product is necessary during return filing for an accurate levy of GST rates on products in India.
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.