What is HSN code under GST – All You Need To Know

In the online system revolution, the convenience of goods transactions has become the norm. Due to the online system, the buying of products internationally is easy for the buyer but the delivery of that product by the e-commerce website facing difficulty. To reduce the difficulty of taxpayers and all the turmoil that can occur in the near future, the system has chosen HSN widely recognized as the Harmonized System of Nomenclature. In this article, we will know all about the HSN code.

What is the HSN code?

The HSN means the harmonized system of nomenclature.
Wherein, each and every letter of the word HSN has its own word. Have a look

  • H stands for Harmonised
    S stands for System
    N stands for Nomenclature

HSN code is a normally uniform six-digit code and which is developed by the world customs organization (WCO) in 1988. The reason for introducing this system to the well-organized arrangement of products worldwide. Almost, more than 5000 products come under the HSN system.

Important of HSN Code

The main importance of the HSN code is that it classifies the products in a logical way and systematic manner all over the world. Due to this, expedites international trade in an easy way.
Worldwide HSN
More than 200 country uses the HSN system because for the following reason:
Uniform Division of Goods
Assist in gathering data related to international trade
The base for usage tariffs.

The wares in international trade which are more than 98% are listed in terms of HSN code. Most of the countries are accepted the HSN system for several specialties. Due to the nature of the product, the HSN code differs in some countries.

Need HSN Code in India

Due to the implementation of GST(Goods and Service Tax) in the whole nation, the nation market became unified, but it is also necessary to become a unified market at the international level. For the uniform organization internationally, HSN code has introduced which is also utilized by India.

Indian manufactured required to follow 3 structures of HSN under the GST regime.

Those manufacturers whose turn over less than Indian rupees 1.5 crore does not need to follow HSN
Those manufacturers or businesses whose turn-over exceeding rupees 1.5 crores and less than 5 crores rupees will have to required 2 digit HSN code.
Those Indian manufacturers whose turnover exceeding rupees 5 Crores will have to needed 4 digit HSN code.
8-digit HSN code requires to follow those dealers or traders who are concerned with imports and export.

Understanding the HSN code with Examples

21 sections, with 99 Chapters, about 1,244 headings, and 5,224 subheadings comes under the HSN code.

Each section is subdivided into chapters. The title of each chapter is divided into headings. Each heading is divided into subheadings.
Under the section and chapter titles, all categories of products are explained and the product in detail is explained under headings and subheadings.
Examples
T-shirt made by manufacture matters 54.32.96
The first two digits (54) describe the chapter number for Articles of garments and clothing accessories.
The next two digits (32) describe the heading number for the T-shirt.
Finally, the last two digits (96) are the product code for the T-shirt made of other textile substances.
To understand in-depth, India has further classified 2 more digits.
If the T-shirt is man-made, then the HSN code is 54.32.96.10.
If silk is used to make the T-shirt, then the HSN code is 54.32.96.96.
Goods Classifying Under HSN System
Under the HSN system, there are six rules for classifying the products which are known as the general rules for the interpretation of the harmonized system or general interpretative rules.

Rule 1

Titles of sections, chapters, and sub-chapters are provided for the comfort of relating only.
Apply headings and sub-headings in a legal way to drive classification.

Rule 2a

If the products are incomplete and have the features of the complete product, classification is similar to that of the finished product (if the classification is recognized).
The heading shall also cover removed/unassembled or disassembled parts (i.e., SKD/CKD).

Rule 2b

Any relating to a material/substance holds a reference to mixtures/combinations of that material or substance with other materials/substances.
The division of goods including more than one material/substance shall take place as per Rule 3.

Rule 3a

The specific title of a product will be considered more than the generic title for that product. For example, milk is considered a 0% tax attracting product under GST. But drinks made from milk have a precise HSN 2202 90 30, which attracts a 12% tax under GST, so the specific title for milk drinks here will prevail over the general head of milk.

Rule 3b

Combined or mixed products should be classified according to the material or substance that gives them their required character.

For example, a shaving kit including an electric trimmer (85.10), comb (96.15) and brushes (96.03) inside a leather bag (45.02) should be classified under shaving kit heading (85.10).

Rule 3c

In case two headings are equally suited to the product or goods, choose the heading that comes last in numerical order.

Rule 4

If products cannot be classified according to the above rules, they should be classified according to the product for which they are most relevant.

Rule 5

Containers especially prepared for the article and proper for long-term use shall be classified with that article if such articles are usually sold with such cases. For example, a camera case would be under the cameras.
Packing materials and containers should also be classified with relevant goods, except when the packing is of repetitious use.

Conclusion

Small dealer which comes under the GST composition scheme does not need to mention HSN code in bill/invoice. Whenever GST tax returns and bill uploaded on the government web portal at that time HSN code does not require to mention. But at the time of doing GST registration, HSN code is needed to mention. Overall, the HSN code plays an important role in the international transaction of goods.

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