Know about the purpose of adopting Harmonized System of Nomenclature (HSN) in India and whom it is meant for? Visit earlyGST guide section for complete details on HSN.

HSN Codes

Last Update Date : January 23, 2018

What is HSN?

HSN, full form ‘Harmonized System of Nomenclature’ is a multipurpose international product nomenclature developed by the World Customs Organisation.

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.

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