HSN Codes under Goods and Services Tax in India



India’s biggest tax reform – GST was introduced on 1-July-2017. It was introduced after 10 years of research and a countless number of meetings. By the introduction of Goods and Services Tax, it brought the internationally used HSN codes into Indian trade business.


Contents :-

  • What is GST

    Goods and Services Tax (GST) is the value-added tax levied on goods and services we use in the country. It is a single tax structure removing all the previous central and state taxation system.

  • What are GST Rates

    GST is the single taxation, but due to the vast number of commodities and services, they are placed under different GST slabs or different GST tax rates.

  • 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.

  • The Need for HSN codes

    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.

  • Understanding HSN Codes

    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 falling criteria.

  • Chapter wise distribution of commodities using HSN codes

    All the goods and services are classified into 21 sections and 99 chapters. The chapters are again into 1244 subheadings. The given HSN codes give the GST tax rates which are levied on the goods.

  • Challenges

    Many companies are yet adopting the GST system. It created a big dilemma for the business people whether to follow the old method or new HSN code method. Due unawareness of the citizens and traders in rural areas are facing difficulties in following the present system.

  • FAQ’s

Goods and Services Tax (GST) is the value-added tax levied on almost all goods sold for domestic consumption and services we use within the country. It is a single tax structure removing all the previous central and state taxes. GST is actually paid by the customers who avail the service or the goods they buy, but it is remitted to the government by businesses houses and companies.

GST is the final outcome after merging all the central taxes ( Excise duty, sales tax, service tax, surcharges and cesses) and state taxes (State VAT/ sales tax, Purchase tax, Luxury tax, entertainment tax, sin tax, etc.) and made into a single tax under the slogan “ One Nation, One Tax”.


What are GST Rates

GST is one of the biggest reforms in the taxation sector in India. GST helped in bringing uniformity in the taxation of various commodities and services used in India. It also contributed in eliminating the cascading effect of various taxes levied by state and central government.

Goods and Services Tax (GST) is the single taxation, but due to the vast number of commodities and services, they are placed under different GST slabs or different GST tax rates.

The GST rates are fixed under 5 slabs,

  1. NIL : Under this tax slab 0% tax is levied on the goods or services we use.
  2. 5 % : Under this tax slab 5% tax is levied on the goods and services we use.
  3. 12%: Under this tax slab 12% tax is levied on the goods and services we use.
  4. 18%: Under this tax slab 18% tax is levied on the goods and services we use
  5. 28%: Under this tax slab 28% tax is levied on the goods and services we use.

NOTE: Gold and other precious metals are exempted and placed under 3% slab.

Till date 34 GST council meetings were held, many goods have been shifted to one slab to another. Some of the tax rates are decreased from 28% to 18% and some of the goods tax rates are shifted to 5% from NIL.


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.


The Need for HSN codes

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.


Understanding HSN Codes

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

  1. 21 Sections  
  2. 99 chapters
  3. 1244 headings
  4. 5244 subheadings

Covers almost all the goods which are in the  trade.


Example:

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.


Chapter wise distribution of commodities using HSN codes

All the goods and services are classified into 21 sections and 99 chapters. The chapters are again into 1244 subheadings. The given HSN codes give the GST tax rates which are levied on the goods.

Serial No / Chapter No’s Description
Chapter 1Live Animals and poultry
Chapter 2Animal Meat and edible offals
Chapter 3Fish, fillets and other aquatic animals meat
Chapter 4Honey, Eggs and Dairy Products
Chapter 5Inedible animal products (unspecified)
Chapter 6Flowers, Live trees and plants
Chapter 7Vegetables
Chapter 8Fruits
Chapter 9Tea, coffee, spices
Chapter 10Cereals and Grains
Chapter 11Milling Industry Products
Chapter 12Medicinal Plants, seeds and fruits
Chapter 13Lac, Gums, Resins, vegetable SAP and other extracts
Chapter 14Vegetable products and materials (unspecified)
Chapter 15Oils, Fats, Vegetable and Animal products  
Chapter 16Fish and aquatic vertebrates meat (Prepared/Preserved)
Chapter 17Sugar, sugar confectionery and bubble gums
Chapter 18Cocoa and Cocoa products
Chapter 19Pastry, pizza, bread, waffles
Chapter 20 Fruits, Juices, Jams and Jellies
Chapter 21Tea, coffee and other edible preparations
Chapter 22Non-alcoholic beverages, Spirit and Vinegar
Chapter 23Residual starch products, meals, and pellets
Chapter 24Tobacco and tobacco products
Chapter 25Salts and Marbles
Chapter 26Mineral ores and concentrates
Chapter 27Coal, Petroleum and other fossil fuels
Chapter 28Gases and Inorganic Chemicals
Chapter 29Hydrocarbons
Chapter 30Blood and Pharma products
Chapter 31Fertilizers and unspecified products
Chapter 32Colouring and Tanning products
Chapter 33Cosmetics and oils
Chapter 34Soaps and waxes
Chapter 35Glues and Enzymes
Chapter 36Industrial explosives and fireworks
Chapter 37Photographic and cinematographic goods
Chapter 38Chemicals and clinical wastes
Chapter 39Plastic products
Chapter 40 Rubber and rubber products
Chapter 41Skins and rawhides
Chapter 42Leather products: Bags, wallets, and handbags
Chapter 43Raw and artificial fur products
Chapter 44Wood products and Wood charcoal
Chapter 45Natural and Shuttlecock Cork
Chapter 46Basketware, of esparto or of other  plaiting materials; wickerwork and manufacturers of Straw
Chapter 47Wood Pulp
Chapter 48Paper, Paperboard,  Newsprint
Chapter 49Printed Books, Newspapers and Postal goods
Chapter 50Silk
Chapter 51Fine, woolor coarse animal hair; woven fabric andhorse hair yarn
Chapter 52Cotton
Chapter 53paper yarn and woven fabrics of paper yarn and Other vegetable textile fibres
Chapter 54Man-made filaments
Chapter 55Man-made staple fibres
Chapter 56Cables,ropes, felt and nonwovens,cordage, wadding; special yarns; twine and articles thereof
Chapter 57Carpets and other textile floor coverings
Chapter 58Fabrics of tufted textile, lace; tapestries,trimmings; embroidery
Chapter 59Coated and laminated textile fabrics, special woven fabrics,
Chapter 60 Knitted or crocheted fabrics
Chapter 61Accessories of clothing knitted or crocheted and articles of apparel
Chapter 62Clothing accessories  not knitted or crochetedand articles of apparel
Chapter 63Other textile articles, sets, worn clothing and rags,worn textile articles
Chapter 64Footwear, gaiters, and parts of such articles
Chapter 65Headgear parts thereof
Chapter 66Umbrellas, walking stick and accessories
Chapter 67Wigs, artificial flowers, false beards
Chapter 68Cement, Plaster, mica and construction materials
Chapter 69Bricks and ceramic products
Chapter 70Glass and glassware products
Chapter 71Gold, silver, diamond, pearls and other precious metals
Chapter 72Iron, steel, Iron rods and non-alloy products  
Chapter 73Railway tracks, iron tube, Containers, nails, needles  and sanitary wares
Chapter 74Copper and copper alloy products
Chapter 75Nickel and nickel alloy products
Chapter 76Aluminium and aluminium products
Chapter 77(Reserved for possible future use)
Chapter 78Lead, lead foils and sheets
Chapter 79ZInc bars,Zinc dust and sheets
Chapter 80 Tin, tin bars and profiles
Chapter 81Cobalt, Magnesium, Bismuth and other base metals
Chapter 82Agricultural tools, cutlery, razors and knives
Chapter 83Padlocks, bells, safe deposit lockers and base metal products
Chapter 84Industrial tools and machinery
Chapter 85Electrical and electronic products
Chapter 86Railway machinery and locomotives
Chapter 87Motor vehicles
Chapter 88Aircrafts, satellites, parachutes
Chapter 89Boats, ships, cargo vessels
Chapter 90Artificial organs, Medical equipment, monitoring systems, photographic, cinematographic accessories, lens and opticals fibres  
Chapter 91Watches and clocks
Chapter 92All Musical Instruments
Chapter 93Arms and Military weapons
Chapter 94Lighting, furniture and household products
Chapter 95Electronic toys, sports goods and gaming consoles
Chapter 96Pens, pencils, educational equipments and smoking pipes
Chapter 97Arts and Antiques
Chapter 98Passenger baggage, laboratory chemical and project imports
Chapter 99Services

Sources:

http://www.cbic.gov.in/htdocs-cbec/customs/cst1718-010718/cst1718-0107-idx

http://www.cbic.gov.in/htdocs-cbec/customs/cst1718-020218/cst1718-0202-idx

http://www.cbic.gov.in/resources//htdocs-cbec/customs/cst1718-010718/Chapter%2050.pdf;jsessionid=0B42EB681A4CF892E4A7A033F712DEB9


Challenges

Till now 34 GST council meetings are held with various agenda. To spread awareness about GST and use the HSN codes in trading, the government is facing difficulties for the past two years. Many goods are shifting from one tax slab to another tax slabs depending on the trade and usage. One HSN code is used for different tax slabs.

Many companies are yet to adopt the GST system. It created a big dilemma for the businessman whether to follow the old method or new HSN code system. Due to unawareness of the citizens and traders in rural areas, difficulties are being faced in following the present system.


FAQs

  • What are HSN codes in GST?

HSN (Harmonized System of Nomenclature) is developed by the World Customs Organisation. These codes are used to classify the goods and  is accepted across the world. HSN codes help in filling the GST returns, import and export of goods.


  • Is it mandatory to mention HSN code in the invoice?

HSN codes are used for the classification of goods by the taxpayers during filing GST returns. If the dealers or taxpayers turnover is more than 1.5 Crores, then he/she must mention the HSN code in the invoice otherwise it is not mandatory to disclose HSN on taxable invoice.


  • What is the main difference between the HSN code and SAC code?

HSN (Harmonized System of Nomenclature) codes are used for the classification of goods and SAC (Services account codes) codes are used for services.


  • Is HSN code same for all countries?

HSN ( Harmonized System of Nomenclature) is developed by World’s Customs Organisation. HSN codes are used to classify the goods. HS codes are similar in all the countries which are under WCO. They use 6 digit HSN code for the goods, but some countries use 8 digit code to subclassify the product or goods.


  • How HSN codes are unique?

HSN codes are unique for each product. Under HSN, all the goods and services are divided into 21 sections, 99 chapters. Under 99 chapters there are 1244 headings and 5244 subheadings. Each item which is used for trade or commercial use, it is identified with 8 digit code using the HSN code rules.


  • How to calculate GST using HSN code?

Taking an example of Cocoa powder to calculate the GST using HSN code.

Cocoa Powder( chocolate powder) per Kg= Rs.1,000.

HSN code  = 18 05 00 00

GST rate = 18%

GST = Rs.180


Author


Team Tax2Win