HSN Code: Definition, Full Form, Lists, and Structure, Uses

HSN, or the Harmonized System of Nomenclature, is an internationally accepted system for classifying goods systematically. Developed by the World Customs Organization (WCO), it serves as the global standard for naming and categorising products. The full form of HSN code is essential for businesses, particularly in streamlining operations and ensuring compliance with taxation systems like GST. By understanding HSN codes, businesses can maintain smooth operations and meet regulatory requirements more effectively.

Business loans can play a pivotal role in navigating the complexities of Harmonized System of Nomenclature (HSN) codes. These codes are essential for classifying goods and services in international trade, facilitating smooth transactions and compliance with tax regulations. Accessing a business loan can provide the financial resources needed to invest in systems or software that streamline HSN code management. Utilising a business loan calculator can aid in assessing repayment terms and budgeting for the investment in HSN code management tools and training. Additionally, funds from a loan can be used to train staff in understanding and correctly applying HSN codes, ensuring accurate classification of goods and services. By leveraging a business loan, businesses can enhance efficiency, reduce errors, and maintain compliance with HSN code requirements, ultimately contributing to smoother international trade operations.

What is HSN code?

HSN code is a numerical system used to classify goods internationally. It assigns a unique code to each product based on its characteristics like composition, purpose, or function. This classification simplifies the process of categorising goods for taxation, customs, and other regulatory purposes, making trade smoother and more efficient.

Why is HSN important?

HSN codes play a crucial role in international trade and taxation systems. They facilitate uniformity in classifying goods, and simplifying processes like invoicing, customs clearance, and taxation. For businesses, accurate HSN classification ensures compliance with regulations, reduces errors, and streamlines operations, ultimately contributing to cost-effectiveness and efficiency.

HSN Worldwide

The HSN system is utilised by over 200 countries and economies for various purposes, including uniform classification, serving as a foundation for Customs tariffs, and aiding in the collection of international trade statistics. More than 98% of globally traded merchandise is classified using the HSN. The Harmonized System of Nomenclature number is widely accepted across most countries and remains consistent for nearly all goods. However, in some cases, the HSN number may vary slightly depending on the nature of the goods being classified.

HSN in India

India has been a member of the World Customs Organization (WCO) since 1971. Initially, the country used 6-digit HSN codes to classify commodities for Customs and Central Excise purposes. To enhance precision, two additional digits were later introduced by Customs and Central Excise, resulting in an 8-digit classification system.

How does HSN code work?

• HSN codes consist of a series of numbers.
• The first two digits represent the chapter, indicating the broader category of goods.
• The next two digits denote the heading, specifying the type of product within the chapter.
• Subsequent digits provide further detail, down to a specific product level.

Example of HSN code

Product: Cotton T-shirts

HSN Code: 6109

Explanation:

• The HSN code (6109) is crucial for accurate categorisation of goods in GST returns (GSTR).
• In the HSN system, the first two digits (61) represent the chapter, which is "Articles of Apparel and Clothing Accessories, Knitted or Crocheted".
• The next two digits (09) represent the heading, specifically pertaining to "T-shirts, singlets, and other vests, knitted or crocheted".
• Incorporating the correct HSN code streamlines the process of GST return filing, ensuring compliance and accuracy in business transactions.

Structure of HSN code in India

HSN (Harmonized System of Nomenclature) codes are crucial for classifying goods in international trade. In India, HSN codes consist of 8 digits, where the first two digits denote the chapter number, the next two digits indicate the heading number, the subsequent two digits specify the sub-heading, and the final two digits detail the tariff item. This hierarchical structure allows for precise categorization of goods, aiding in uniformity and clarity across various industries. Businesses rely on HSN codes to accurately classify their products for tax purposes and regulatory compliance. Understanding this structured approach is essential for ensuring correct classification of goods, facilitating smoother trade operations, and adhering to legal requirements within India's GST framework.

HSN code list for GST India

The HSN Code List for GST in India categorises goods into different chapters and headings, each assigned a unique HSN code. This comprehensive list aids businesses in accurately classifying their products for GST compliance. It ensures consistency in tax calculation, simplifies documentation, and facilitates seamless trade across borders.

HSN in GST

HSN (Harmonised System of Nomenclature) codes are essential for Goods and Services Tax (GST) in India. They categorise goods based on their characteristics and facilitate uniform taxation. Understanding HSN codes ensures accurate tax calculation and compliance with GST regulations.

Usage of the HSN code for GST

• HSN codes are mandatory for businesses registered under GST.
• They are used to classify goods for tax calculation and invoicing purposes. A GST calculator can help with these calculations.
• HSN codes help in determining the applicable GST rate for each product, ensuring accurate tax compliance.

How can businesses implement HSN codes in their process?

Implementing Harmonized System of Nomenclature (HSN) codes is crucial for businesses for smooth GST compliance and operations.

• The process involves categorising offerings and understanding the structure of HSN codes.
• Staff should receive proper training to accurately assign codes to products.
• Integration of HSN codes in ERP systems helps reduce errors.
• Regular updates on changes in GST rates and HSN codes should be conducted.
• Inclusion of HSN codes in all invoices is mandatory for GST compliance.
• Collaboration among departments is necessary, along with record maintenance, engagement with suppliers and vendors.
• Frequent compliance checks, reviews, audits, and seeking professional advice when needed are essential.

Declaration of HSN code for Goods and Services

In accordance with GST regulations, businesses are required to declare the appropriate HSN (Harmonised System of Nomenclature) code for all goods and services supplied. This declaration ensures uniformity and accuracy in tax assessment and facilitates smoother compliance with GST requirements. By correctly identifying and declaring HSN codes, businesses can streamline their invoicing processes, enhance transparency in transactions, and mitigate the risk of errors or discrepancies in tax filings. It is essential for businesses to stay updated with HSN code revisions and maintain accurate records to comply effectively with GST regulations.

How to add HSN code in the GST portal?

Here are the steps to add an HSN code in the GST portal:

• Step 1: Login to the GST portal using your credentials.
• Step 2: On the dashboard, navigate to ‘Services’ > ‘Registration’ > ‘Amendment of Registration Non-core fields’.
• Step 3: Click on the ‘Goods and Services’ tab.
• Step 4: Select the ‘Goods’ tab.
• Step 5: Search for the relevant HSN chapter by entering the HSN code or name of the item.
• Step 6: Click on ‘Save and continue’. Continue clicking on the ‘Save’ button until you complete all necessary details.
• Step 7: Complete the verification process and submit the amendment either via Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).

What is the difference between the HSN Code and the HS Code?

HSN and Harmonised System Code (HS Code) are essentially the same in the context of customs and shipping. The World Customs Organization (WCO) introduced this international product nomenclature in 1988 to facilitate systematic global goods classification. While the 6-digit codes are commonly referred to as HS Codes worldwide, in India, they are known as HSN Codes.

India, a WCO member since 1971, initially used the 6-digit HSN code for Customs and Central Excise duties. To improve the precision of goods classification for import, export, and taxation purposes, two additional digits were later added, creating an 8-digit classification known as the ITC-HS Code (Indian Trade Clarification based on Harmonized System of Coding). This extended code is sometimes still called HSN Code. It’s important to note that the ITC-HS Code is identical to the HS Code except for the final two digits.

Conclusion

Understanding and correctly declaring HSN codes for goods and services are crucial aspects of complying with GST regulations. It ensures accurate tax assessment, facilitates smoother transactions, and reduces the risk of errors. For businesses looking to streamline their operations or expand their ventures, exploring options like a business loan can provide the necessary financial support to effectively manage their compliance requirements and drive growth.