What Is HSN Code?

What Is HSN Code?

By Team TranZact | Published on Jun 13, 2023

Looking for an answer to what is HSN code and why it's essential for businesses engaged in international trade? HSN stands for Harmonized System of Nomenclature. It is developed by the World Customs Organization (WCO) and is the global standard for classifying goods.

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If you want to know more about what is HSN code, the importance of HSN under GST, and how to find HSN Codes, do continue reading this article.

How Does the HSN Code Work?

HSN is widely used for taxation purposes globally. It is useful to determine the tax rate for a specific product in any country. With an HSN code, enterprises can also calculate their tax benefits.

An HSN code is recognized globally and also helps determine the quantity of imported and exported products in any country. The HSN code is used by over 5,000 commodity groups – each of which is identified with a 6-digit unique code. The HSN code system is used in over 200 countries (including India) for the following reasons:

  • For the uniform classification of products
  • To calculate custom tariffs
  • To collect the latest statistics about international trade

As per the WCO, effectively 98% of international trade merchandise is classified using an HSN code. The HSN code is supported by well-defined rules for the uniform classification of products.

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How does HSN code work in India?

India has been a WCO member since 1971. Before the advent of GST, the HSN code was used to classify commodities for customs and central excise purposes. Initially starting from 6 codes, India's excise department added two digits to create an 8-digit HSN code.

Next, let's discuss the importance of the HSN code.

Importance of HSN Code

Introduced in the year 1988, the HSN code is a global code used to classify goods all across the world. It is a 6-digit uniform code that has classified over 5,000 products. The HSN code stands for uniform classification of manufactured goods across countries. The objective of this code is to categorize all goods across the globe in a systematic and logical structure.

Systematic categorization of goods is important to facilitate international trade and over 190 countries currently use this code.

As an international coding standard, the first six digits of the HSN code are identical for all countries. Every country has added more digits to its HSN code for additional classification. For example, India supports a 4, 6, and 8-digit classification – while the U.S. uses a 10-digit HSN code.

The HSN code exists for every commodity across WCO member nations and is the same for all goods across countries. Depending on the type of classified goods, HSN numbers can vary in selected countries.

In the following sections, we will discuss the HSN code list with the GST rate regulations.

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HSN Code List

The HSN code list comprises 21 parts or sections – along with 99 chapters, 1,244 headings, and 5,224 subheadings.

Each section is a product category based on its technical and industrial sophistication. Listed below are the 21 sections:

Section numberHSN code list for:
1Live and animal products
2Vegetable products
3Animal/ Vegetable fats and oils, chemical cleavage products, edible fatty products, animal/vegetable wax
4Prepared foodstuff, beverages, spirits, vinegar, tobacco & tobacco substitutes
5Mineral products
6Chemical products or products from allied industries
7Plastics (and thereof articles), and Rubber (and thereof articles)
8Raw hides, leathers, skins, fur skins, saddlery & harnesses, travel products, handbags, & similar products, animal gut articles (except silkworm gut)
9Wood (& wooden articles), wood charcoal, cork (& cork articles), manufacturers of straw, esparto, & plaiting materials, basketwork & wickerwork
10Wood pulp, fibrous cellulosic material, recovered waste and paper or paperboard, and paper or paperboard articles
11Textile and textile articles
12Footwear, headgear, umbrellas, sun umbrellas, walking sticks, seat sticks, whips, riding crops (& parts thereof), prepared feathers and articles (made therewith), artificial flowers, and articles of human hair
13Articles of glass, glassware, stone, plaster, cement, mica or similar materials, asbestos, ceramic products
14Natural (or cultured) pearls, precious (or semi-precious) stones, precious metals, metal clad with precious metal, imitation jewelry, and coins
15Base metals and base metal articles
16Machinery & mechanical appliances, electrical equipment, sound recorders & reproducers, television image, and parts and accessories of such article
17Vehicles, aircraft, vessels, and associated transportation equipment
18Cinematographic, optical, photographic, measuring, checking, precision, medical (or surgical) instruments, and apparatus, watches, clocks, musical instruments, parts and accessories thereof
19Arms and ammunition, parts and accessories
20Miscellaneous articles
21Artworks, collector pieces, and antique products

When filing for GST returns, you need to know the HSN code list to determine the code for your manufactured product.

Having difficulties understanding how the HSN code list works? Let's understand it with an example in the next section.

Understanding the HSN Code With Example

In the previous section, we understood what is an HSN Code, and saw the 21 sections of the HSN code. These sections are further divided into 99 chapters.

Further, each chapter is divided into headings – and each heading is divided into subheadings. In total, there are 1,244 headings and 5,224 subheadings.

Each section and chapter is used to denote a product category and product. For example, Section 6 refers to products of chemicals or allied industries, and Chapter 31 which falls under Section 6 refers to fertilizers.

Following this, each heading and subheading is used to denote the nature of the good or product in detail.

Here is an example of an HSN code structure: where:

Section: The HSN code begins with a two-digit section code that broadly classifies products into different sections. For example, Section 20 represents miscellaneous manufactured articles. Chapter: A chapter is represented by a two-digit code. For instance, Chapter 94 specifically pertains to furniture, bedding, mattresses, and cushions, and it includes chairs as one of the product categories.

Heading: Each chapter is further divided into headings, denoted by a two-digit code. Under Chapter 94, Heading 94.01 covers seats (other than dental chairs) with wooden frames.

Subheading: The subheading provides more specific details about the product. It is represented by a two-digit code. For example, sub-heading 94.01.30 refers to chairs with metal frames.

For example Where 10 is the tariff number representing chairs with metal frames, and covered with leather or artificial leather.

This is the structure of the HSN code. Next, let's discuss why the HSN code is necessary for GST in India.

Since 1986, India has been using the 6-digit HSN code to classify goods for customs and central excise. With the introduction of GST, India has made it mandatory for business enterprises to use HSN codes.

Here is how HSN codes apply to Indian business enterprises:

  • Companies with less than ₹1.5 crore turnover do not have to use HSN codes.
  • Companies with a turnover between ₹1.5 crore and ₹5 crores must use a 2-digit HSN code.
  • Companies with over ₹5 crores turnover must use a 4-digit HSN code.
  • Companies that are into international imports and exports must use an 8-digit HSN code.

Using an HSN code in India is essential to comply with GST regulations and for global acceptance of the goods sold by a business. With the GST HSN code, GST-registered members do not have to enter any goods-related information manually when filing their GST returns.

Another important component of this topic is to understand what is the importance of the HSN code for GST registration. Let's discuss that in the next section.

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Importance of HSN Under GST

From 1st April 2021, it is mandatory to declare HSN codes for GST purposes. Here is why the HSN code is important for GST:

Transaction amountType of Invoice documentNo. of HSN code digits to declare
Below ₹5 croresB2B tax invoice (mandatory)4
B2C tax invoice (optional)4
Above ₹5 croresAll invoices (mandatory)6

Effectively, the GST HSN code must be declared by GST taxpayers in every tax invoice issued by them. For imports and exports under GST, taxpayers must declare all 8 digits of their HSN code.

With the introduction of HSN codes, GST-registered members no longer need to upload the details of their goods manually for each transaction. This simplifies GST tax filing and saves time. Dealers and service providers with annual turnovers (in the above slabs) must provide their HSN sales summary in the GSTR-1 form.

How to Find HSN Code Using HSN Code Finder

It is important to enter the details of the HSN code for GST registration. This section will help you find out how to use an HSN code list with a GST rate.

You can use the HSN Code Finder tool if you do not know the relevant HSN code for your specific good.

Within the HSN code rate finder, you can choose to search by product name. Alternatively, you can calculate the GST rate based on the HSN code.

To search by product name on the HSN code rate finder:

  1. Enter the product name in the HSN code finder. You will receive recommendations with the most relevant HSN code based on the search.

  2. Click the right item to obtain the 6 or 8-digit HSN code and the applicable GST rate.

To search based on HSN code:

  1. Enter the GST HSN code's first 2 or 4 digits in the HSN code finder.

  2. Click the right item to obtain more details about the HSN code and applicable GST rates.

If goods are categorized by HSN Codes, how are services categorized? Another type of code structure known as the SAC Code is used to identify and categorize various types of services.

Now that we know the importance of HSN under GST, and how to use an HSN finder for HSN code verification, let's discuss what is the difference between HSN and SAC codes in detail.

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The Difference Between HSN Code and SAC Code

The SAC full form in GST is Service Accounting Code (SAC) and it is issued by the Central Board of Indirect Taxes and Customs (CBIC) in India. Both SAC and HSN codes are used to classify goods and services in the GST regime.

SAC is used to classify services, with each service assigned a unique SAC. It is used by service providers in their invoices for their delivered services.

Every SAC begins with the digit 99. The next two digits denote the major service rendered, for example, legal service. The last two digits of the SAC reflect the details of the rendered service, for example, legal documentation of patent filing.

Based on the SAC mentioned, GST rates are applicable across five slabs – 0%, 5%, 12%, 18%, and 28%. For services without a given GST rate or SAC, the applied GST rate is a standard 18%. If your business deals with both goods and services, you must comply with the relevant HSN SAC code regulations.

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Ensure Your Business Aligns With HSN Code Regulations

Using the universal HSN Code system and HSN finder makes it easier for taxpayers to file their GST returns in India. Through this article, we have shared important information about how to use the HSN code.

TranZact offers an easy-to-use HSN SAC Code finder as part of its solutions. TranZact is an expert in business automation and helps you to digitize your inventory, production, and material planning functions with ease.

If you need an expert to provide information about GST-compliant invoicing and documentation, then the TranZact team can help you. Contact them today.

FAQs on HSN Code

1. How do I find HSN Code?

The HSN code for a specific product can be found by referring to the official HSN code list provided by the country's customs or tax authority.

2. What is the purpose of using HSN codes?

HSN code stands for Harmonized System of Nomenclature. An HSN Code serves the purpose of standardizing the classification and identification of goods across international borders, facilitating trade, and enabling uniform tax calculations.

3. Who assigns HSN codes?

HSN codes are assigned by the World Customs Organization (WCO) at the international level, and each country further adopts and adapts them according to its specific requirements.

4. How many digits are there in an HSN code?

Harmonized System of Nomenclature codes or HSN codes generally consists of six digits, with some countries adopting additional digits for more detailed classification.

5. What are the benefits of HSN codes for businesses?

HSN codes simplify the process of taxation, customs duties, and documentation, making it easier for businesses to classify and trade their goods globally.

6. Can HSN codes change over time?

Yes, HSN codes can change or get updated periodically to accommodate new products, technological advancements, or changes in international trade practices.

7. What is the difference between HSN codes and SAC codes?

HSN codes are used to classify goods, while SAC (Services Accounting Code) is used to classify services. Both codes serve the purpose of uniform classification and taxation, but they are applied to different categories of goods and services.

8. What is the HSN Code in India?

Short for Harmonized System of Nomenclature, the HSN code is a unique code used to classify goods. India uses an 8-digit HSN code that is essential for GST purposes.

9. Is HSN Code Mandatory?

In India, the HSN code verification is mandatory for all B2B invoices issued by business enterprises with an annual turnover of over ₹5 crores. HSN code is optional for B2C invoices.

10. What is SAC?

SAC full form in GST is Service Accounting Code, and it is used to classify various services with a unique number. Every SAC begins with the digit 99.

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