In the dynamic landscape of tax compliance, keeping current is vital for business success. GST offers transparency updates on tax obligations and enhances the overall tax experience, aiding smoother financial operations.
In this blog, we will understand the meaning of HSN Code and its Utility.
What is 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. HSN was introduced in 1988 by the World Customs Organization (WCO). It was introduced for a systematic classification of goods, both national and international. It is a 6-digit 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 the GST purposes, too. HSN is used all over the world. There are different HSN codes for various commodities.
Why is HSN important under GST?
The purpose of HSN codes is to make GST systematic and globally accepted.
HSN codes will remove the need to upload the detailed description of the goods. This will save time and make filing easier since GST returns are automated.
A dealer or a service provider must provide HSN/SAC wise summary of sales in his GSTR-1 if his turnover falls in above slabs.
What is SAC HSN Code in GST?
Like goods, services are also classified uniformly for recognition, measurement and taxation. Codes for services are called Services Accounting Code or SAC.
Understanding the HSN Code
The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 subheadings.
- Each Section is divided into Chapters. Each Chapter is divided into Headings. Each Heading is divided into Sub Headings.
- Section and Chapter titles describe broad categories of goods, while headings and subheadings describe products in detail.
HSN in GST
HSN codes to be declared
| Transaction Charges | No. of digits of HSN to be declared |
| Upto 5 crore | 0 |
| More than 5 crore | 6 |
Also Read: HSN Code Mandatory In GST: When And Why
Declaration of HSN Code for Goods and Services
| Transaction Charges | Type of Invoice document | No. Of digits of HSN to be declared |
| Up to 5 crore | Mandatory for B2B tax invoices | 4 |
| Optional for B2C tax invoices | 4 | |
| More than 5 crore | Mandatory for all invoices | 6 |
*Annual aggregate turnover for the previous financial year, i.e., for reporting invoices in FY 2023-24, turnover to be referred must be of FY 2022-23.
- These HSN codes must be declared in every tax invoice issued by the taxpayer under GST.
- All 8 digits of HSN code is mandatory in case of export and imports under the GST.
HSN Codes Offer Several Advantages For Taxpayers
1. Clarity in Taxation
HSN codes provide a standardised way to classify goods, ensuring clarity on the applicable tax rates for each product. It helps taxpayers accurately determine the correct tax liability.
2. Accurate Tax Calculation:
By using the correct HSN code, taxpayers can avoid errors in tax calculation. It prevents overpayment or underpayment of taxes, reducing the risk of penalties or compliance issues.
3. Efficient Compliance
HSN codes facilitate accurate reporting of supplies in GST returns. It leads to smoother compliance processes, as the tax authorities can easily verify the accuracy of reported data.
4. Reduced Disputes
Clear categorisation using HSN codes minimizes the chances of disputes between taxpayers and tax authorities regarding the appropriate tax rate for a product.
5. Ease of Cross-Verification:
Tax authorities can cross-verify the HSN codes mentioned in invoices and returns, leading
to a more transparent and accountable tax ecosystem.
6. Export and Import
HSN codes are crucial for international trade. Exporters and importers can use them to classify goods, ensuring consistency in tariffs and facilitating smoother customs processes.
7. Faster Refunds
Accurate HSN codes can expedite refund processes by ensuring that the supplied information matches the criteria for claiming refunds.
8. Uniformity
HSN codes promote uniform taxation across the country, as they provide a standardised classification system that every taxpayer can use.
Related Read: How to Add HSN code in GST Portal?
The Bottom Line
It’s essential for businesses to correctly determine and apply the appropriate HSN code to their products to ensure accurate taxation. They typically include the HSN code in invoices and other relevant documents for GST compliance.
Businesses must be aware of the HSN codes applicable to their products, as these codes determine the tax rates and other regulatory requirements associated with them.
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.
Frequently asked questions:
- What is the difference between an HSN code and a SAC code?
HSN codes are used for the classification of goods, whereas SAC codes are used for services.
- Where are HSN codes required to be mentioned?
HSN codes are required to be mentioned on invoices or Bills of Supply and in the GSTR-1 return.
- Is HSN code 4-digit or 8-digit?
HSN Codes are typically 6-digit codes. However, in India, we have 8-digit HSN codes where the first two digits represent the chapter number, the next two digits represent the heading number, the following two digits comprise the sub-heading, and the last two digits are the tariff item.
- What is HS and HSN code?
HSN Code is the same as the Harmonised System Code (HS Code) in shipping. However, it is more commonly known as the HSN in India. Like the HS Code list, each of the HSN codes for import and export of goods comprises six digits.
