All About HSN Codes

HSN is an abbreviated form for Harmonized System of Nomenclature, consisting 6-digit uniform code that classifies 5000+ goods and is globally accepted. HSN code was introduced under GST to systematically classify goods. 

HSN Worldwide 

More than 100 Nation worldwide uses HSN coding system as it: 

1. Standardize classification of goods 
2. Provides a base for Customs tariffs 
3. Helps in the collection of international trade statistics 

Note: Typically, the HSN code in most of the countries remains constant, but there are certain countries such as India, where it varies a little to help classify the tariff plans of the goods. 

HSN Code under GST in India 

Since 1971, India is a member of the WCO (World Customs Organization). It first utilized 6 digit HSN codes to classify goods for Customs and Central Excise duties. Then, to make the codes more exact, the Customs and Central Excise authorities proceeded to add 2 additional digits. So, currently, in India, we use 8 digit HSN code to classify goods. 

Under GST, HSN codes not only help in classifying goods but also the applicable GST rate. This makes it necessary for the notified taxpayers to mention HSN codes on the GST invoice. 

Notified Taxpayer for Whom the Declaration of HSN Code is Mandatory 

Before 1st April 2021, taxpayers whose aggregate turnover was less than INR 1.5 Crores were exempted from declaring HSN Codes on the GST invoices. However, from 1st April 2021 every taxpayer needs to declare HSN codes: 

Aggregate Turnover	Type of GST Invoices	HSN Code Digits to be declared
Up to 5 crore	B2B GST Invoices (Mandatory)	4
	B2C GST Invoices (Optional)	4
More than 5 crore	B2B and B2C GST Invoices (Mandatory)	6

Note: In the case of export and imports under the GST, the taxpayer needs to mention all 8 digits of the HSN code. 

Structure of the HSN Code 

The HSN code consists of 21 sections, 99 chapters, 1244 headings, and 5224 subheadings 

Each section of the HSN code is divided into chapters, then each chapter is divided into headings, and each heading is divided into sub-headings. 

Sections and chapters in the HSN code help in dividing the broad categories of goods. Whereas, heading and sub-headings describe the goods in detail. And the last two digits help in identifying the tariff plan of the good. 

HSN Code Example 

HSN code for milk and cream containing added sugar where fat content by weight does not exceed 1.5% is 402101 

1. The first 2 digits i.e. 40 denotes the chapter number. 
2. The next 2 digits i.e. 21 denotes the heading 
3. The last 2 digits i.e. 01 represent sub-heading. 

Importance of HSN Code under GST 

1. HSN code helps GST to be systematic and globally accepted. 
2. The taxpayer does not need to upload a detailed description of goods this, in turn, helps in saving time and money. 

Way Forward 

It is important to know the right HSN code to minimize errors at the time of filing GST returns and stay GST compliant. However, choosing HSN codes for multiple items takes time and is also a tedious activity. So, if you choose GST software, it will help you automate all your GST-related compliances and reduce errors caused due to human intervention.