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HSN stands for Harmonized System of Nomenclature which was developed by the World Customs Organization (WCO) with the vision of classifying goods all over the World in a systematic manner.
WCO has 181 members, three-quarters of which are developing countries that are responsible for managing more than 98 percent of world trade. HSN standardizes the classification of merchandise under sections, chapters, headings, and subheadings. This results in a six-digit code for a commodity (two digits each representing the chapter, heading, and subheading).
India, a member of WCO since 1971, has been using HSN codes since 1986 to classify commodities for Customs and Central Excise. Customs and Central Excise added two more digits to make the codes more precise, resulting in an eight-digit classification.
HSN has been applicable in India after implementation of GST. India has already been using HSN system in the Central Excise and Customs regime.
But the GST HSN is a much more detailed classification that adds another two digits to the 6-digit structure. For certain categories of person in GST, there is even an requirement to mention HSN code with GST rate in the tax invoices prepared by them.
Under GST law, the HSN code to be used by a taxpayer for classification of goods will be based on the taxpayer's turnover. The HSN code needs to be declared on the tax invoice and also to be reported while filing the GST returns.
The HSN codes for mandatory mapping/classification of goods that need to be used by a taxpayer are as follows;
|Sections||HSN code list|
|Section 1||Live Animals, Animal Products|
|Section 2||Vegetable Products|
|Section 3||Animal or Vegetable Fats and Oils and their cleavage products, prepared edible fats, Animal or Vegetable waxes|
|Section 4||Prepared Foodstuffs, Beverages, Spirits and Vinegar, Tobacco and Manufactured Tobacco Substitutes|
|Section 5||Mineral Products|
|Section 6||Product of the chemicals or allied Industries|
|Section 7||Plastics and articles thereof, Rubber and articles thereof|
|Section 8||Raw hides and skins, Leather, Furskins and articles thereof, saddlery and harness, travel goods, handbags and similar containers, articles of animal gut ( other than silk-worm gut )|
|Section 9||Wood 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 10||Pulp of wood or of other Fibrous Cellulosic Material, Recovered ( Waste and scrap ) paper or paperboard, paper and paperboard and articles thereof|
|Section 11||Textile and textile articles|
|Section 12||Footwear, 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 13||Articles of stone, plaster, cement, asbestos, mica, or similar materials, ceramic products, glass and glassware|
|Section 14||Natural or cultured pearls, Precious or semi-precious stones, precious metals, Metal clad with precious metal, and articles thereof, Imitation Jewellery, Coins|
|Section 15||Base Metals and articles of Base Metal|
|Section 16||Machinery and mechanical appliances, electrical equipment, parts thereof, sound recorders and reproducers, television image and souch recorders and reproducers, and Parts and Accessories of such article|
|Section 17||Vehicles, Aircraft, Vessels and Associated Transport Equipment|
|Section 18||Optical, Photographic, Cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, clocks and watches, musical instruments, parts and accessories thereof|
|Section 19||Arms and ammunition, parts and accessories thereof|
|Section 20||Miscellaneous Manufactured Articles|
|Section 21||Works of art, Collectors’ Pieces and antiques|
The coding process of a commodity is organized logically by economic activity or component material. For example, animals and animal products are found in one section of the HS, while machinery and mechanical appliances are found in another. The HSN book for referring to an HSN Code for a product is organized into following, by which one can make a quick reference to the HSN Code for the product he is searching for:
Sections and Chapter titles
Describes about broad categories of goods
The first two digits of HSN Code is designated to HSN Chapter
These are arranged in order of a product’s degree of manufacture or in terms of its technological complexity. For Example : within Section X (Pulp of wood or of other fibrous cellulosic material; Recovered (waste and scrap) paper or paperboard; Paper and paperboard and articles thereof), Chapter 47 provides for pulp of wood or of other fibrous cellulosic materials, whereas Chapter 49 covers printed books, newspapers, and other printed matter
For instance, natural commodities, such as live animals and vegetables are described in the early sections of the HS, whereas more evolved goods such as machinery and precision instruments are described in later sections
Headings and Sub-headings
Describes the product specifically or in detail
The next two digits of HSN Code is attributed to Headings and the third set of two digits is for HS Sub Headings
The headings within individual Chapters follow a similar order. For example, the first heading in Chapter 50 (Silk) provides for silkworm cocoons while articles made of silk are covered by the chapter's later headings
So it becomes important to know in which of these categories your product or good has been classified. And one can easily find that with a search using commonly used word for the product.
So the Rate Finder Tool is used to find the HSN Code for the goods or products for invoicing purposes.
HSN is a six-digit code that classifies more than 5000 products, arranged in a legal and logical structure. To achieve uniform classification, the HSN is supported by well-defined rules and is accepted worldwide.
HSN classification is widely used for taxation purposes by helping to identify the rate of tax applicable to a specific product in a country that is under review. It can also be used in calculations that involve claiming benefits.
Yet that’s not all – it also applies to import and exports. The HSN code aids in determining the quantity of all items imported or traded through a nation.
Why is HSN important under GST?
While the primary purpose of the HSN code is the systematic classification of goods, it can also be used to gather data and solve problems that would otherwise be difficult to obtain. The result is a more efficient international trade system.
HSN is in use worldwide, with 200+ countries participating. This impressive adoption rate can be chalked up to the benefits of HSN, which include:
Nearly 98% of international trade stock is classified in terms of HSN, further evidence of its reputation as the best form of international classification.
HSN numbers exist for each commodity in every country, and the number remains the same for almost all goods. In some countries, HSN numbers can vary a little because they are entirely based on the nature of the items classified.