HSN Codes & Their Implications in GST

By Team TranZact | Published on Jan 24, 2022

The term HSN Code is one which every businessman in India has heard after July 1, 2017, as the date of the launch of GST in India. So, what is this code exactly, and why we all have been hearing about this and using it in our invoices every time? So, let’s learn about it a little.

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What does HSN Code stand for?

The full form of HSN code is Harmonized System of Nomenclature (HSN) code.

What is an HSN Code?

Now after learning about the full form of HSN code, the next thing to know is what does it mean or what purpose does it have. So, HSN code or Harmonized System of Nomenclature (HSN) is a system that classifies goods or products all around the world.

World Customs Organization logo

The HSN codes were established and introduced by the World Customs Organization in 1988. So, it is a 6-digit uniform code that categorizes over 5000+ goods that are accepted worldwide.

Why is the HSN Code so important?

The HSN code helps in providing a uniform classification of goods all around the world so it becomes easy to identify in both domestic and international trade. Further, it helps in majorly in the GST and Customs tariffs calculation. It also helps in providing the information for International Trade and Statistics.

How does India stand for HSN?

India is a member country of the World Customs Organization (WCO) since 1971 along with almost 200 member countries. That’s why it has been using the 6-digit HSN code for its Customs and Central Excise products classification needs till 2017. But form 2017 it has been using it for the GST’s classification of goods and other products.

Also, Turkey has been using the 12-digit HSN code for a more detailed classification of its commodities which is one other member country of WCO. India also is using the 8-digit HSN code for detailed identification of its commodities.

How does an HSN code structure work?

So, let’s understand what does 6-digit HSN code is made of and how it categorizes and uniformly identifies any product.

An HSN code comprises about 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 subheadings. Now every Section is the main category. Then it gets divided into Chapters as the next set of subcategories. Then it gets divided into Headings which is a subcategory for Chapters. Then again, it gets divided into Subheadings which is a subcategory for Headings. So, this is how an HSN code is made up of.

Now let’s see an example, HSN code 630210 of Textiles (Bed Linen) –

  1. So, the first two digits (63) represent the chapter number for Articles of Other made-up textile articles, sets; worn clothing and worn textile articles, rags.
  2. The next two digits (02) represent the Heading number for Bed linen, table linen, toilet linen, and kitchen linen.
  3. Finally, the last two digits (10) is the product code for Bed linens Knitted or Crocheted.

HSN Code Section List.

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

How do HSN codes used in the GST framework?

The main idea of India using HSN code in the GST framework is to make the framework globally accepted and more systematic. According to the latest updates which are applicable from 1st April 2021 –

  1. Businesses with their Aggregate Turnover up to Rs.5 crore when they issue B2B Tax Invoices need to mandatorily state the HSN codes up to 4 digits.
  2. Businesses with their Aggregate Turnover up to Rs.5 crore when they issue B2C Tax Invoices have an option to state the HSN codes up to 4 digits.
  3. Businesses with an Aggregate Turnover of more than Rs.5 crore when they issue any type of Invoice need to mandatorily state the HSN codes up to 6 digits.
  4. And all 8 digits of the HSN code are mandatory in case of export and imports under the GST.

How is the Indian Government making HSN code functionality more suitable for the Taxpayers?

The Indian Government has introduced the HSN code functionality in the GST framework to ease out the Return filing mechanism for the taxpayers. As with the help of HSN codes, there is no need to upload a detailed separate description of the goods. And this saves time makes GST return filing system more user-friendly and efficient.

And now moving ahead in this path only the Search HSN functionality is getting revamped by linking it to the e-invoice database and Artificial Intelligence tools. So now in the Search HSN code functionality, the taxpayers can search the HSN code and the applicable Technical description through common parlance/trade description of the goods as they are known in the Trade. It helps the taxpayers to search HSN Code by providing a description/part of a description. Also, this new facility is available at both pre- and post-login.

The users can access it by going through this navigation on the GST Portal

Home>Services>User services>Search HSN Code

GST Portal

For a more detailed understanding of this new functionality, the users can go through the Government’s advisory by clicking here.

Way Forward

Also, if you want to make your GST return filing process smoother you all should start using software solutions that will assist you in this purpose. Because these software solutions help in your invoicing needs. Further if you once assign an HSN code to one of your products for one time you don’t have to search for it every time in the HSN code lists.

Further, these software solutions will help you in creating JSON files for the return filing purposes and make it faster and easier. So, software solutions like TranZact

Further, these software solutions will help you in creating JSON files for the return filing purposes and make it faster and easier. So, software solutions like TranZact can help you in this purpose. And make your business more automated and digitized reducing your effort in these particular business activities.

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TranZact is a team of IIT & IIM graduates who have developed a GST compliant, cloud-based, inventory management software for SME manufacturers. It digitizes your entire business operations, right from customer inquiry to dispatch. This also streamlines your Inventory, Purchase, Sales & Quotation management processes in a hassle-free user-friendly manner. The software is free to signup and gets implemented within a week.