What is HSN code in GST?

What is an HSN code

HSN stands for “Harmonized system of Nomenclature” which was developed by the World Customs Organisation (WCO). WCO’s main objective for introducing HSN codes is to classify all the goods in a systematic manner. It clears the confusion and helps in domestic and international trade between the countries. More than 20,000 goods are traded using HSN codes across the world between the countries. More than 90% of world trade is done WCO using the revised HSN codes. India also included in the community by accepting the HSN codes procedure.

Why is HSN important under GST?

For years other countries are using HSN codes for the trade. After the introduction of GST in our country, HSN and imports and exports standardize Codes as accepted in the global platform have been adopted.

The use of HSN codes minimize the cost and simplify the customs procedure.

The HSN codes help all the taxpayers, to know about GST rates against a particular product. It is mandatory to mention the HSN codes while filling the GSTR forms.

How does HSN code work?

The use of HSN codes are mainly for dealers and trades. They must adopt 2 digits, 4 digits, and 8 digits HSN codes depending upon the following criteria.

  • If the business turnover is less than Rs.1.5 crores then there is no need of adopting the HSN codes.
  • If the business turnover is between Rs.1.5 Crs to Rs. 5 Crs then, they must adopt 2 digit HSN codes for the business trades.
  • If the business turnover is above Rs.5 Crs then, they must adopt 4 digit HSN codes for the business.
  • In the case of Import and export dealings and international trades, one must adopt 8 digit HSN codes for the business trades.

Under the HSN module the classification of the goods into different

  • 21 Sections  
  • 99 chapters
  • 1244 headings
  • 5244 subheadings

Example:

Covers almost all the goods which are in the trade.

Nylon Moulding Powder (HSN Code: 39 08 90 10)

  • The first two digits (39) indicates the chapter under HSN codes.
  • The next two digits (08) indicates the headings under chapters.
  • Next 2 digits (90) indicates the sub-headings, 6 digits HSN code is accepted worldwide.
  • The next 2 digits (10) sub-classify the product tariff heading during import and export of supply.

The use of HSN codes allows you to save time and money during GST filing, by filling the HSN codes it allows automation in GSTR.

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