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What is an HSN Code?

HSN stands for Harmonized System of Nomenclature. HSN was raised and industrialized by the WCO (World Customs Organization) in the year 1988. Since then 5 revisions has already been implemented worldwide. HSN code asserts more than 5000 goods meticulously and is widely used by more than 150 countries. It is a globally accepted multipurpose tool for customs and trade procedure. Currently, more than 95% of trade is under the WCO and every country is following 2017 revised HSN codes including India.

Amendments in HSN system

There are 233 amendments which were made in HSN codes which shall be followed by each country for the customs declaration for the exported or imported goods from 1/01/2017. These amendments includes:

  • The Agricultural sector (85)
  • The Chemical sector (45)
  • The Wood sector (13)
  • The textile sector (15)
  • The base metal sector (6)
  • The machinery sector (25)
  • The transport sector (18)
  • Other miscellaneous sectors (26)

Purpose of adopting HSN code in India

After the introduction of GST, enactment of HSN code in India is bringing the country at par with the other countries which has been following HSN for years. HSN code was adopted by India to make GST standardized and worldwide accepted. This has also minimized the cost that are related to international trade as it will bring harmonization in trade and customs procedures.

The HSN will help every taxpayer in India to search the GST rate by just entering the HSN code after that the system will automatically show the tax rate applicable on the commodity under the GST, hence abridging and simplifying the trade related procedures in India. That is why it is mandatory to mention the correct HSN codes during the GST Return filing under GST. These are the reasons why India adopted HSN system.

Structure of HSN code

HSN code is a six-digit number for goods, this six-digit number consists of two number each for

  • Chapter: Under HSN module there are 99 chapters.
  • Heading: Under these chapters, there are 1244 headings.
  • Subheading: There are 5224 subheadings under these headings.
  • Regional Tariff*
  • National Tariff*

The first six digits of HSN code cannot be altered as per the guidelines of WCO but last four digits which includes Regional tariff and National tariff can be changed by the customs authority. This HSN code helped the government to implement GST on goods and services seamlessly as HSN system was already adopted by India under Central Excise and Customs regime.

Let us see the format of HSN code

Search HSN Code

Application of HSN code in India

There are certain criteria on which the HSN depends on. They are mentioned below:

  • No HSN code is required to businesses whose turnover is less than 1.5 crore INR Any company whose turnover is more than 1.5 crore INR but less than 5 crores INR shall apply 2 digit HSN code.
  • digit HSN code is required in the case any business has a turnover of more than 5 crores INR.
  • Any business who is into export and import, irrespective of turnover shall use 8 digit HSN code.

What is SAC?

Service Accounting Code (SAC) is a unique code that is identical to the International HSN codes in many ways. SACs are issued by Central Board of Indirect Tax to classify each service so as to identify the applicable rate of tax on the respective services. These SACs are used at the time of generating invoices for the services rendered.

Format of SAC

The SAC code is a unique 6 digit number that contains two number each for

  • Chapter
  • Heading
  • Sub-heading

Let us understand this with an example, the SAC code for General construction services of mines and industrial plants is 995425 that consists

  • 99 is the code that denotes the Chapter and remains constant throughout
  • 54 stands for civil engineering works (Heading)
  • 25 is for general construction services for plants and mines (Sub-heading)

Difference between SAC and HSN code

S.N0 Parameters HSN SAC
1 Full-Form Harmonized System of Nomenclature Services Accounting Code
2 Used For HSN helps in identification of GST Rates applicable to goods. SAC is used in identifying the GST rates applicable to services.
3 Structure 8 Digit Code 6 Digit Code

FAQS

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HSN code provides standardization and global acceptance of the goods. Under GST regime it is mandatory for all the business on which HSN system is applicable to get HSN code so as to levy the proper rate of taxes on them set by the concerned authorities in India.

No, HSN codes are not applicable to all the industries. These industries include

  • - Any business whose turnover is less than 1.5 crore INR.
  • - Any business which is registered under GST composition scheme.

Yes, as it will be difficult for the business to enter each and every detail of the dealer. Businesses can opt for HSN code which will help to save more time. But businesses shall carefully choose the HSN code while filing the details in the GST Return.

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