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All about HSN Classification System in GST
In this article, you will learn :
- Introduction of HSN Code
- HSN on a Global Scale
- India's HSN classification system
- HSN Classification Structure
- HSN Code requirement in Invoice (HSN code turnover limit)
- Why is HSN code significant within the GST System
- Services Accounting Code (SAC) in GST
- ๐๐จ๐ง๐ฌ๐๐ช๐ฎ๐๐ง๐๐๐ฌ ๐จ๐ ๐๐จ๐ง ๐ฆ๐๐ง๐ญ๐ข๐จ๐ง๐ข๐ง๐ ๐จ๐ ๐๐๐ / ๐๐๐ ๐๐จ๐๐ ๐จ๐ซ ๐ฆ๐๐ง๐ญ๐ข๐จ๐ง๐ข๐ง๐ ๐ข๐ง๐๐จ๐ซ๐ซ๐๐๐ญ ๐SN /๐๐๐ ๐๐จ๐๐
- Significance of HSN Code in GST
- Frequently asked questions (FAQs)
Introduction
The implementation of the Goods and Services Tax (GST) system in India marked a substantial transformation in the country's taxation framework, notably through the incorporation of the Harmonized System of Nomenclature (HSN) code. The HSN code stands as an internationally acknowledged classification system for goods, promoting standardized and consistent tax categorization. The HSN code was established by the World Customs Organization (WCO) and became operative in 1988. In this article, we will explore the details of the HSN code used in the GST system and understand how it makes it easier to classify and follow tax rules.
HSN on a Global Scale
The HSN system finds application in over 200 nations and economies for various purposes, which include:
- Uniform classification
- Base for their Customs tariffs
- Collection of international trade statistics
India's HSN classification system
India became a member of the World Customs Organization (WCO) in 1971. Initially, it utilized 6-digit HSN codes to categorize goods for Customs and Central Excise purposes.
Afterward, Customs and Central Excise included two extra digits to make the codes more exact, which made it an 8-digit system for sorting and labelling products.
HSN Classification Structure
The HSN structure is composed of 21 sections, featuring 99 chapters, around 1,244 headings, and 5,224 subheadings.
Sections are further divided into chapters which in turn are divided into headings. Each heading is then further segmented into subheadings.
The titles of sections and chapters represent general groups of products, whereas headings and subheadings provide detailed descriptions of specific items.
Where in HSN:-
- First 2 letters represents Chapters
- Next 2 letters represents Headings
- Second last 2 letter represents Sub Headings
- Last 2 letters represents Tariff
HSN Code requirement in Invoice (HSN code turnover limit)
From 1st April 2021, HSN code to be declared was as follows:-
| Annual Aggregate Turnover in PY | Type of Invoice | No of digits of HSN to be declared |
| Up to 5 crores | Mandatory for B2B tax invoices | 4 |
| Optional for B2C tax invoices | 4 | |
| More than 5 Crores | Mandatory for all invoices | 6 |
Up to 31st March 2021, HSN code to be declared was as follows:-
| Annual Aggregate Turnover in PY | No of digits of HSN to be declared |
| Upto 1.5 crores | 0 |
| 1.5 crores to 5 crores | 2 |
| More than 5 crores | 4 |
Why is HSN code significant within the GST System?
The purpose of HSN codes is to make GST systematic and globally accepted.
- Uniform Classification: It is an internationally recognized system for categorizing goods. This ensures consistency in the classification of products for the purposes of tax calculation.
- Customs and Central Excise: HSN codes were also used for Customs and Central Excise purposes. Now, this is continued under GST which helps in the understanding of the tax structure.
- Precise Taxation: With the help of HSN codes, due to their unique structure, it helps in determining the exact rate of GST applicable to a specific product.
- International Trade: HSN codes are used internationally for categorizing goods. It helps in international trade (import and export).
- Reduced Errors: HSN provides a standard method for the calculation of tax, which helps in reducing errors by both taxpayers and tax authorities.
- Ease of Compliance: By using HSN codes taxpayers can easily comply with the taxation rules. It helps taxpayers to identify and to apply correct GST rates to their products. It reduces the chances of disputes.
- Data Analysis: From the economic point of view, HSN can be used for data analysis like consumption patterns, industry trends etc. It helps in better policy planning and decision-making.
Services Accounting Code (SAC) in GST
The Services Accounting Code (SAC) is a classification system used in India's Goods and Services Tax (GST) regime to categorize various services for taxation purposes. Similar to the Harmonized System of Nomenclature (HSN) codes used for goods, the SAC system classifies services to determine the appropriate GST rate and facilitate uniformity in service tax compliance.
Example: 998213 is the SAC code for Legal Documentation and Certification Services Concerning Patents, Copyrights, and Other Intellectual Property Rights.
- The first two digits are the same for all services i.e. 99
- The next two digits (82) represent the heading of the major nature of service, in this case, legal services
- The last two digits (13) represent the service code of the detailed nature of the service, i.e., legal documentation for patents, Copyrights, and Other Intellectual Property Rights.
๐๐จ๐ง๐ฌ๐๐ช๐ฎ๐๐ง๐๐๐ฌ ๐จ๐ ๐๐จ๐ง ๐ฆ๐๐ง๐ญ๐ข๐จ๐ง๐ข๐ง๐ ๐จ๐ ๐๐๐ / ๐๐๐ ๐๐จ๐๐ ๐จ๐ซ ๐ฆ๐๐ง๐ญ๐ข๐จ๐ง๐ข๐ง๐ ๐ข๐ง๐๐จ๐ซ๐ซ๐๐๐ญ ๐๐N /๐๐๐ ๐๐จ๐๐
The repercussions of not specifying the HSN/SAC code or providing an incorrect HSN/SAC code are as follows:
- The invoice will be treated as an Invalid Invoice.
- Buyer will not be able to claim ITC
- As per Section-125 Penalty of Rs. 25000/- under CGST and a Penalty of Rs. 25000/- under SGST will be charged.
Significance of HSN Code in GST:
1. Streamlining Tax Classification:
The incorporation of HSN codes into the GST system streamlines tax classification by offering a standardized and organized structure. It provides uniform taxation practices all over the industries. HSN provides simplification of tax classification, improves effectiveness, and reduces uncertainty.
2. Assessing Tax Rates:
HSN codes have a very important role in determining tax rates. It makes it easier for taxpayers to calculate accurate tax rates applicable to their products and eliminates confusion.
3. Promoting Global Commerce:
This is the help of HSN codes, it makes it easier to do international trade. These codes are used internationally. This simplifies customs processes and makes global business smoother.
4. Reporting and Documentation:
HSN codes are very important for record-keeping, documentation, and reports in the GST system. This helps taxpayers to check and make sure that goods are classified correctly.
Frequently Asked Questions (FAQs)
Q: What is the full form of HSN?
A: The full form of HSN code is โHarmonized System of Nomenclatureโ. This is a system used for the classification of goods which is accepted world-wide.
Q: What is HSN code?
A: This system has been introduced for the systematic classification of goods all over the world. HSN code is a 6-digit uniform code that classifies 5000+ products and is accepted worldwide.
Q: How does HSN code work?
A: It has about 5,000 commodity groups, each identified by a six-digit code, arranged in a legal and logical structure. These groups are governed by clear and well-defined regulations designed to ensure consistent and standardized classification.
Q : Why is HSN important under GST?
A : By employing HSN codes, GST becomes a more methodical and internationally recognized taxation system. These codes eliminate the necessity to provide comprehensive descriptions of goods when filing tax returns, resulting in time savings and simplifying the filing process through automation.
Q : What is the difference between an HSN code and a SAC code?
A : HSN Stands for Harmonized System Nomenclature and SAC stands for Service Accounting Code. HSN codes are used for the classification of goods, whereas SAC codes are used for services.
Q : What is โAggregate turnoverโ under GST?
A : As per Section-2(6) of CGST-"aggregate turnover" means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-state supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.
Q : How many digits are there in the HSN code used in India?
A : In India, the HSN (Harmonized System of Nomenclature) code consists of 8 digits. These codes are used for the systematic classification of goods for taxation and trade purposes. The first 6 digits of the HSN code are consistent with the international HSN system, while the additional 2 digits are used to provide more specific details for local classification.
Q : How to add HSN code in the GST portal?
A : Follow these steps to add an HSN code in the GST portal:
- First visit on www.gst.gov.in
- Then by using login credentials, Log in to the GST portal.
- On the dashboard, navigate to 'Services' > 'Registration' > 'Amendment of Registration Non-core fields'.
- Then, click on the 'Goods and Services' tab.
- Choose the 'Goods' tab.
- Search for the relevant HSN by entering the HSN code or the name of the item.
- Click on 'Save and continue'.
- Complete the verification by submitting using either a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC).
