HSN Code: Meaning and Full Form
If you are a small business owner, you are likely to be familiar with the various codes and certifications that products must adhere to in order to be approved for retail sale. These systems are put in place to ensure that product quality, categorizations, and taxation can be prsoperly regulated. These systems also help business owners keep track of their inventory and tax liabilities.
The HSN code is one such system. The HSN code full form is Harmonized System of Nomenclature Code, as ascribed by the World Customs Organization (WCO). It is a globally recognized classification system for goods, widely used in taxation and trade to ensure uniformity in the classification of products. It enables seamless movement of goods across borders and helps in aligning with international trade standards. Under the Goods and Services Tax (GST) regime, HSN codes help streamline taxation and reduce disputes related to product categorization, ensuring businesses comply with government regulations.
How to Access HSN Code List ?
You can access all HSN code list, particularly all GST HSN code list, by logging on to the GST Portal with valid credentials. Click the Services and then User Services to search HSN Code. HSN code search is a useful tool to track the GST rules for a particular product. For instance, if you are looking for HSN code for solar structure, you can quickly look it up on the GST portal and know the tax implications for the production and distribution of all products involved in building them.
HSN – Summary of Outward Supplies
Under GST, businesses must declare all HSN codes in their outward supplies to maintain tax compliance. The requirement for HSN disclosure depends on the taxpayer’s annual turnover:
- Businesses with turnover up to ₹5 crores: 4-digit HSN code is mandatory for B2B transactions but optional for B2C transactions.
- Businesses with turnover above ₹5 crores: 6-digit HSN code must be used for all invoices.
- Exports and Imports: An 8-digit HSN code is used to match international classification standards.
This classification ensures clarity in taxation and helps in automated tax processing, making compliance easier for businesses.
How Does HSN Code Work?
HSN codes facilitate systematic classification of goods for taxation and trade. The code assigned to a product determines the GST rate applicable to it, ensuring that businesses apply the correct tax rate to their products. The HSN system is widely accepted in international trade, making it easier for businesses to comply with export and import regulations. Proper use of HSN codes minimizes errors in tax filing and helps authorities track the movement of goods effectively.
Structure of HSN Code in India
The HSN codes structure in India follow a six-digit format based on WCO standards, with additional digits added for further classification in some cases:
- First two digits: Broad category of goods (Chapter level)
- Next two digits: Specific product category (Heading level)
- Last two digits: Detailed classification of goods (Sub-heading level)
- India-specific codes: In some cases, an 8-digit HSN code structure is used for deeper classification to meet domestic needs.
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Conclusion
Now that you know all about HSN code, you are aware that it plays a crucial role in GST compliance, ensuring a standardized classification of goods. The systematic use of HSN codes reduces tax-related disputes and simplifies trade by providing a uniform structure for product categorization. Understanding and correctly applying HSN codes helps businesses maintain proper invoicing, taxation, and trade documentation, ultimately leading to seamless business operations.
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FAQ
1. How is the HSN Code structured?
HSN codes follow a 6-digit format internationally, with India extending it to 8 digits for specific classifications. The structure consists of sections, chapters, headings, and sub-headings that define the product category.
2. Is HSN Code mandatory in India?
Yes, HSN codes are mandatory for GST filings, with exemptions for small taxpayers in certain cases. The mandatory usage depends on the business’s annual turnover.
3. What is the purpose of HSN Codes?
HSN codes standardize product classification, facilitate tax compliance, and streamline international trade. They help determine applicable GST rates and ensure consistency in trade practices.
4. How many digits does an HSN Code have under GST in India?
India primarily follows a 6-digit HSN code, extending to 8 digits for certain products where more specific classification is required.
5. Where can I find the HSN Code for a product?
HSN codes can be found in the GST portal, CBIC website, or through trade directories based on product descriptions. You can also consult tax professionals or industry classification guides to determine the correct HSN code for their products
6. How is HSN Code Different from SAC Code in GST?
While the HSN Code applies to goods, the SAC is used for the classification of services under GST. SAC codes function similarly to HSN codes but are specific to services, whereas HSN codes are applicable only to tangible products. HSN codes help determine the GST rates on goods, whereas SAC codes help identify the tax structure for different types of services. This differentiation ensures that both goods and services are taxed appropriately under GST.
