The Harmonized System of Nomenclature (HSN) designations serve as a standardized product classification system essential to international trade. The World Customs Organization (WCO) created and maintained HSN codes with alphanumeric identities linked to various commodities, enabling a smooth international exchange of traded goods. These identifiers, which usually consist of six digits, facilitate effective communication between commercial partners, improve transparency, and expedite customs operations.
HSN codes are a crucial part of the tariff and customs environment since they help with precise classification, guaranteeing that every product is recognized consistently throughout borders. Businesses involved in international trade must have a basic understanding of HSN codes since they affect regulatory compliance, customs duties, and cross-border operations’ effectiveness.
What is an HSN Code?
HSN code is the short form of the Harmonized System of Nomenclature. It is a system which is applied all across the world for systematic classification of goods. It is a six-digit uniform code for over 5000 products, accepted globally. It has been in effect since 1988 when WCO, or the World Customs Organization, first introduced it.
What is the Importance of HSN Code?
India and other countries globally have been using HSN Codes for an extended period. However, after implementing GST in India, HSN and globally recognized import and export codes have also been embraced. Besides the systematic classification of goods, the HSN code’s most essential purpose is to simplify the customs process and minimize cost.
Moreover, these HSN codes also assist the taxpayers in knowing and understanding the GST rates associated with a particular commodity. Hence, the government has made writing the HSN codes in the GSTR forms mandatory.
HSN Code Current Requirements
Effective the 1st of April 2021, the CBIC has changed how the HSN codes will be reported in the GSTR forms. The table below will help you understand the requirements:
|Annual Turnover (in the preceding financial year)
|HSC Code digits
|Up to INR 5 crores
|B2B tax invoices – 4 digits (mandatory)
B2CS tax invoices – 4 digits (optional)
|More than INR 5 crores
|B2B and B2CS tax invoices – 6 digits (mandatory)
Explanation of HSN Codes – Understanding its Structure
To understand how HSN code works, it is necessary to know its structure. Let’s look at it below:
- There are a total of 21 sections overall in HSN codes.
- These 21 sections are further divided into 99 chapters. These chapters are specific to a category of product.
- All these 99 chapters are later classified as headings, sub-headings and tariff items.
- If the HSN code is for eight digits – the first two digits will be the chapter, 4th digit will be the heading, the sixth digit will be the subheading, and 8th digit will be the tariff items.
Example of HSN Code
Here is an example of a vegetable identified and classified as per HSN codes:
In the above example, the first two numbers or digits- 07 describe vegetables (chapter). The following two (03) digits describe which vegetable (heading). The following two (10) are the sub-headings referring to the various options within the main heading. Finally, the last (10) refers to the tariff items, which are fresh or chilled onions.
HSN Codes and Product Identification
Let’s look at the different HSN Codes associated with the various products for your reference and understanding. These are listed under various chapters, along with their product classification, which will be helpful in the GST filing.
|Live animals and poultry
|Animal meat and edible offals
|Fish, filets, and other aquatic animals meat
|Honey, eggs, and dairy products
|Inedible animal products
|Flowers, live trees and plants
|Tea, coffee, spices
|Cereals and grains
|Milling industry products
|Medicinal plants, seeds, and fruits
|Lac, gums, resins, vegetable SAP and other extracts
|Vegetable products and materials
|Oils, fats, vegetables, and animal products
|Fish and aquatic vertebrates meat (Prepared/Preserved)
|Sugar, sugar confectionery, and bubble gums
|Cocoa and cocoa products
|Pastry, waffle, pizza, breads
|Fruits, jams, juices, and jellies
|Tea, coffee, and other edible preparations
|Spirit and vinegar, non-alcoholic beverages
|Residual starch products, meals, and pellets
|Tobacco and its products
|Salts and marbles
|Mineral ores and concentrates
|Coal, petroleum, and other fossil fuels
|Gasses and inorganic chemicals
|Blood and pharma products
|Fertilizers and unspecified products
|Coloring and Tanning products
|Cosmetics and oils
|Soaps and waxes
|Glues and enzymes
|Industrial explosives and fireworks
|Photographic and cinematographic goods
|Chemical and clinical waste
|Rubber and rubber products
|Skins and rawhides
|Leather products – bags, handbags and wallets
|Raw and artificial fur products
|Wood products and wood charcoal
|Natural and shuttlecock cork
|Basketware of esparto or other plaiting materials; wickerwork and manufacturers of straw
|Paper, newsprint, paperboard
|Newspaper, printed books, and postal goods
|Fine wool or coarse animal hair; woven fabric and horsehair yarn
|Paper yarn and it’s woven fabrics and other vegetable textile fibers
|Man-made staple fibers
|Cables, ropes, felt and nonwovens, cordage, wadding, special yarns, twine, and articles thereof
|Textile floor covering and carpets
|Lace, fabric and tufted textile, trimmings, tapestries, embroidery
|Special woven fabrics, coated and laminated textile fabrics
|Knitted or crocheted fabrics
|Accessories of clothing knitted or crocheted and articles of apparel
|Clothing accessories that are not knitted or crocheted & articles of apparel
|Other textile articles, sets, worn clothing and rags, worn textile articles
|Footwear, gaiters, and parts of such articles
|Walking sticks, umbrellas, and accessories
|Artificial flowers, wigs, and false beards
|Plaster, cement, construction materials, and mica
|Ceramic products and bricks
|Glass and glassware products
|Silver, gold, diamonds, and other valuable metals
|Steel, iron, iron rods, and non-alloy products
|Iron tubes, railway tracks, nails, containers, needles, and sanitary wares
|Copper and copper alloy products
|Nickel and nickel alloy products
|Aluminum and aluminum products
|Not specified and reserved for future
|Sheets, lead, and lead foils
|Zinc dust, bars, and sheets
|Tin bars, tin, and profiles
|Cobalt, magnesium, bismuth, and other base metals
|Cutlery, agricultural tools, knives and razors
|Padlocks, bells, safe deposit lockers, and base metal products
|Industrial tools and machinery
|Electronic and electrical products
|Locomotives and railway machinery
|Satellites, aircraft, and parachutes
|Ships, boats, and cargo vessels
|Artificial organs, medical equipment, monitoring systems, photographic and cinematographic accessories, lenses, and optical fibers
|Clocks and watches
|All musical instruments
|Army and military weapons
|Furniture, lighting, and household products
|Sports goods, electronic toys, and gaming consoles
|Pencils, pens, educational equipment, and smoking pipes
|Arts and antiques
|Passenger bags, project imports, and laboratory chemicals
In summary, the smooth operation of customs and international commerce operations depends on the functionality of HSN codes. HSN codes facilitate unambiguous communication about the type of commodities being exchanged by offering a defined, hierarchical classification system. These standards’ methodical approach streamlines the customs process, improves openness, and guarantees uniformity in calculating taxes and charges.
Companies that do business internationally need to understand the importance of HSN codes since proper categorization helps with regulatory compliance and speeds up cross-border transactions. As a developing system, HSN codes are still essential for enabling practical and transparent international trade and encouraging a uniform method of classifying commodities in the world market.
Is there any rule regarding the HSN code?
All taxpayers with a turnover of INR 5 crores must write 4-digit HSN codes in the GSTR forms.
What will happen if someone enters an incorrect HSN code?
Every taxpayer must record the correct HSN code on their tax Invoices and GSTR-1. It is essential to mention the HSN correctly in GST returns and tax invoices to avoid a penalty of Rs 50000 (Rs 25000 under CGST and Rs 25000 under SGST).
What does the eight-digit HSN code mean?
An HSN code’s chapter is determined by its first two digits, headings at the four-, subheadings at the six-, and tariff items at the eight-digit positions.
How are the different products classified as per HSN codes?
Every chapter has an HSN number that is two digits long. Every two-digit HSN number is subclassified to produce a four-digit HSN code. These four-digit HSN codes are subsequently further subdivided into six-digit HSN codes.
Who needs to use HSN codes?
Every taxpayer with an annual turnover of over five crores must use HSN codes in their GST returns.
Are there any HSN codes that are GST-free?
Yes, many HSN codes are free under GST.
Can there be two products with the same HSN code?
Indeed, it is feasible for two objects to share the same codes under the HSN code system.
Is it a mandate for taxpayers to mention the HSN code in their GST invoice?
All taxpayers with B2B invoices of more than Rs. 5 crores must mention the HSN code in their GST invoice.
Is the ITN and HSN code the same?
ITN, or the Indian trade classification or Indian tariff code, are the last two digits of the 6-digit HSN code.
Who assigns the HSN code?
The World Customs Organization (WCO) updates and manages the HSN every five years.