A Complete Guide on HSN Code in GST

A six-digit GST number called the HSN code is typically used to categorise different items. Tax invoices on the supply of products and services are required for both B2B and B2C transactions.

For all establishments with a turnover of Rs 5 crore and above, the Indian Ministry of Finance has enforced the use of the HSN code in GST. From April 1, 2021, it will be required for the supply of taxable goods & services.

Understanding the Concept of the HSN Code

There are 21 parts in the GST HSN code, which are further split into 99 chapters & approximately 1244 headings. This categorization scheme contributes to the ease of use and universal acceptance of GST. Customs & Central Excise categorise items using the original six-digit HSN numbers. For GST reasons, the codes stated in the Customs tariff are also utilised. To acquire and analyse data quickly in order to comprehend local and international commerce, the GST HSN codes can be quite useful. The government uses this information to make decisions on the trading of various commodities-related policies

Requirement for the HSN Code

HSN's primary goal is to offer a common categorization for commodities from all around the world. The international trading process can be greatly facilitated by this standard and methodical method of classification. The HSN is used to list about 98% of all goods traded internationally. Before the introduction of the GST, the majority of producers, exporters, & importers in India used HSN codes. These codes are included by importers and exporters in their export and import paperwork, respectively, while traders typically include HSN numbers in the GST invoices that manufacturers or suppliers issue to them.

This categorization scheme is also commonly utilised in the taxes industry. The GST HSN code aids in determining the tax rate that applies to a certain item under consideration.

Classification

According to the HSN categorization of commodities, the Central Board of Indirect Taxes & Customs (CBIC) in India publishes GST rates. Therefore, it is essential for the corporation to first establish the relevant HSN Code in order to compute the GST rate of a product. The CBIC has required the adoption of the following HSN codes starting on April 1, 2021, for GST purposes:

• If the total revenue for the prior year was up to 5 cr, a 4-digit HSN code must be mentioned.
• If the total revenue for the prior year exceeds 5 cr, the 6-digit HSN Code must be included.

Online calculators help with an HSN code search to get the proper codes since it's crucial to include the right HSN code in GST. Basically, there are four different sorts of HSN codes:

• The two-digit code- The initial two digits identify the Chapter.
• The four-digit code- The Headings at the four-digit level are
• The six-digit code- The Subheadings are at the 6-digit level.
• The eight-digit code- The Tariff Items are at the 8-digit level.

The HSN Code in India

HSN codes were initially implemented in India in 1986 to categorise goods for Customs & Central Excise. Both GST and Customs are subject to HSN codes. The codes used for GST purposes and the Customs tariff are the same. HSN codes are being utilised on a global scale. For many goods, several HSN codes exist. The main benefit of the HSN code under GST is that it does away with the requirement to file a thorough description of the items. This expedites and saves time while filing GST returns.

How does the Code work?

• There is no requirement to apply the HSN codes if the company's annual revenue is less than Rs. 1.5 crores.
• If a company's annual revenue is between Rs. 1.5 crore and Rs. 5 crores, it must use two-digit HSN numbers for all commercial transactions.
• If a company's annual revenue exceeds Rs. 5 Cr, it must use four-digit HSN numbers.
• One must use 8-digit HSN codes for business trades while doing the import, export, and worldwide commerce.

SAC Codes

The SAC or, Services Accounting Code, is a system of classification for services as opposed to goods. The Service Tax Department of India created it. The GST rates for services are broken down into five categories using the GST SAC code: 0%, 5%, 12%, 18%, and 28%.

What is the difference between HSN & SAC codes?

Generally, all services start with 99, which distinguishes the code as a SAC & not an HSN. The amount of digits in the codes is another distinction between the two; HSN codes have 8 digits whereas SAC numbers have 6 digits.

The advantages of the GST HSN Code

• It gives Customs & Central Excise a standard, worldwide framework for categorising items.
• It offers a unified system of international taxes.
• makes conducting business globally easier.
• Invoicing, filing taxes, and other tasks also use it.

Importance of HSN under GST

The GST system in use today India's HSN codes are consistent throughout the nation and align with the accepted categorization standards around the world. HSN code greatly lowers the likelihood of mistakes occurring during interstate commerce. Every Indian state had its unique code for each commodity for both sale and purchase prior to the implementation of this consistent system. Errors and omissions occurred as a result when trade between the states.

Classifying Goods under HSN

Since 1986, Central Excise & Customs in India has utilised the HSN system. The 6-digit framework of this system was enlarged to include two more digits. The most recent regulation classifies code as follows:

• The product's chapter number is represented by the first two numbers.
• The heading number is represented by the next two numbers.
• The product code is represented by the final two numbers.

The objective of the HSN Code in GST

Up to 200 nations throughout the world utilise HSN codes. This high utilisation rate is due to HSN's advantages, which include:

• To increase data collection for statistics on global commerce
• HSN codes offer a justification for Customs taxes.
• It is a standard categorization that is acknowledged everywhere.

Every commodity has an HSN code, and these codes are consistent across all nations and practically all products. However, because HSN numbers are solely dependent on the nature of the objects categorised, they may exhibit minor variances in various nations.

How to locate your HSN Code

To find a product's HSN code:

• Select the Chapter first.
• To obtain the product code, pick Section and then filter the subheading.

Sections of HSN

The HSN is divided into 21 divisions, each containing 99 Chapters, 1,244 headings, and 5,224 subheadings. Each Section is further divided into Chapters, Headings, and Subheadings. Each Heading is further broken into Subheadings. The subheadings and headings provide a detailed description of the product whereas the Section & Chapter only cover the major categories of items.

Conclusion

GST's HSN code system has significant effects on tax collection in addition to being useful for customs officers. It aids in making the GST standardised and uniform. The Goods and Services Tax (GST) does not require a thorough description to be uploaded for each commodity that is subject to the tax when HSN codes are used. This enables the automation of GST returns, saving the tax authorities both time and money.