Understanding HSN Code?
HSN code stands for “Harmonized System of Nomenclature”. The HSN code is a numerical classification system used to categorise goods for taxation and trade purposes. It’s employed to streamline the taxation process, ensuring uniformity and accuracy in tax assessment. HSN codes consist of digits and denote specific product categories, helping businesses determine the appropriate GST rates and facilitating precise reporting for compliance.
It is mandatory for both B2B and B2C tax invoices on the supplies of Goods and Services. It was introduced for a systematic classification of goods, both national and international. It is a code that classifies various products. India has been using HSN codes since 1986 to classify commodities for Customs and Central Excise. HSN codes apply to Customs and GST. The codes prescribed in the Customs tariff are used for GST purposes, too. HSN is used all over the world. There are different HSN codes for various commodities.
How to Decode HSN Codes:
Deciphering HSN codes involves breaking down the alphanumeric code to understand its components. The code comprises chapters, headings, subheadings, and product-specific codes. By referring to the HSN code list, which is available on the GST portal, businesses can accurately determine the code that corresponds to their products or services.
HSN codes are not mere numbers, They are a systematic approach to categorizing products and services, ensuring smooth taxation processes, and fostering efficient trade practices. As a business owner or a conscientious taxpayer, grasping the significance of HSN codes empowers you to navigate the complexities of GST with confidence and accuracy.
The HSN structure comprises 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 subheadings.
● Each Section is bifurcated into Chapters. Each Chapter is bifurcated into Headings. Each Heading is bifurcated into subheadings.
● Section and Chapter titles describe broad categories of goods, while headings and subheadings describe products in detail.
HSN An Legal Mandate
HSN codes are essential threads that weave clarity and accuracy into the taxation landscape. In some situations, skipping the inclusion of HSN codes simply isn’t an option.
For businesses, surpassing specific turnover thresholds isn’t just a milestone; it’s a signal that the granularity of tax reporting must increase. When your aggregate turnover crosses 5 crore threshold, From 01st November 2022, Phase-2 will be implemented on GST Portal and taxpayers with up to Rs 5 crore turnover would be required to report 6-digit HSN codes in their GSTR-1.
1. Mandatory for all tax invoices – 6 Digits HSN Code
When engaging in export and import activities, HSN codes become indispensable. Accurate codes on shipping documents facilitate seamless communication, classification, and duty calculation for customs authorities. Navigating the complexities of global trade necessitates the adoption of these codes to maintain compliance across borders.
2. In case of export and imports under the GST – 8-Digits HSN Code
Import of Goods and Service
Import of services, the IGST Act, 2017, defines it as the supply of a service by a supplier who is based outside the company but the recipient of the services is based in India, and the place at which the service is supplied is also within the geographical boundaries of the country.
Meaning of Export & Import of Services
“Import of Services” as defined under Section 2 (11) of IGST Act, 2017 means the supply of any service when –
1. The supplier of service is located outside India;
2. The recipient of service is located in India; and
3. The place of supply of service is in India.
“Export of Services” as defined under Section 2 (6) of IGST Act, 2017 means the supply of any service when –
1. the supplier of service is located in India;
2. the recipient of service is located outside India;
3. the place of supply of service is outside India;
4. the payment for such service has been received by the supplier of service in
convertible foreign exchange; and
5. the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;
or the purposes of this Act, where a person has,—
● an establishment in India and any other establishment outside India;
● an establishment in a State or Union territory and any other establishment outside that State; or
● an establishment in a State or Union territory and any other establishment being a business vertical registered within that State or Union territory then such establishments shall be treated as establishments of distinct persons.
Applicability Of IGST
GST regime states that if imported into India, the supply of Goods or services or both will be considered as supply under inter-state commerce or trade and will attract integrated goods and service tax.
Also, read About Bill to ship model
The Bottom Line.
It’s essential for businesses to correctly determine the nature of supply and apply the appropriate HSN code to their products to ensure accurate taxation.
Businesses must be aware of the HSN codes applicable to their products, as these codes determine the associated tax rates and other regulatory requirements.
Do you need help Finding Your Products or service HSN or SAC code? CaptainBiz is the ultimate GST billing software that helps you provide the same and also Provides simple invoicing, real-time inventory management, and cost reduction, allowing you to grow your business seamlessly.
Read More: What Is the Work Contract HSN Code Under GST
Frequently Asked Questions:
- What does an 8-digit HSN code mean?
In the 8-digit structure of an HSN Code, the first 2 digits define the Chapter, at the 4-digit level are the headings, at 6-digits are the subheadings and finally, at 8 digits are the tariff items. All 8-digit HSN codes are mandatory for exports and imports under GST.
- Who should use an 8-digit HSN code?
HSN codes of 8 digits are required only in case of export and import of goods.
- What is the turnover limit for an 8-digit HSN code?
Businesses with up to 5 crores can use HSN at 6 or 8 digits, while businesses with more than 5 crores can use HSN at 8 digits.