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What is an HSN Code?

HSN stands for Harmonized System of Nomenclature. HSN was established and industrialized by the WCO (World Customs Organization) in 1988. Since then, five revisions have already been made worldwide. GST HSN code states more than 5000 goods and is primarily practised by more than 150 countries. This 6-digit HSN code can be utilized to classify more than five thousand commodities and is further applied for tax objectives classification. The Customs and Central Excise attached two more digits later to advance HSN code search for more reliable differentiation. It is a globally trusted multipurpose instrument for indirect taxes. More than 95% of the industry is currently monitored under the WCO, and each country is revising it, including India.

Amendments in the system

This is one of the essential changes in the GST Rule. As per GST Notification issued by CBDT, taxpayers must incorporate the GST HSN code in their tax invoice for designated products. Earlier, it was mandatory to have only in the GST invoice for taxpayers with a turnover of more than five Crores. But now, the HSN code for gst is compulsory for all tax invoices.

Initially, taxpayers were required to present HSN-wise invoice amounts but presently are required to state HSN code plus the rate-wise taxable amount and tax volumes in Table-12 of GSTR-1.

Two hundred thirty-three amendments have been made in codes which each country has begun to follow since 1/01/2017. These amendments include:

  • 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)

How To Obtain HSN Code list India through accessing the HSN Code Finder?

Explore By Product Title: Type the name of your good, you will get suggestions for the most appropriate four-digit in HSN Codes list. Hit search for all results if you don’t get the required code for your product. Click on the four-digit code to receive six and eight-digit code specifications for export-import views, as well as the HSN code with GST Rate.

Explore by HSN Code: Type the first two or first four digits of the HSN Code. Click on the wanted outcome to get more knowledge regarding the HSN code.

Scope of affirming HSN code in India

Following GST implementation, the enactment of the HSN code in India brings the country at par with the other countries following HSN for years. India adopted the HSN code to standardise GST. This has also minimized the cost related to international trade as it will bring harmonization in trade processes.

The HSN will encourage each taxpayer in India to explore the GST rate by accessing the code. Subsequently, the system will automatically determine the tax rate relevant to the products under the GST, hence shortening and clarifying the trade-related methods in India. That is why it is obligatory to consider the correct search HSN codes throughout the GST Return filing under GST.

Structure

It consists of two digits each for Chapter, Heading and Subheading so accordingly

  • Chapter: Under the HSN module consists of 99 chapters.
  • The Chemical sector (45)
  • Heading: Under those chapters, there are 1244 headings.
  • Subheading: Under these headings consists 5224 subheadings
  • Regional Tariff*
  • National Tariff*

The first six digits of the code list can not be modified as per the guidelines issued by WCO. However, the customs administration can change the Regional Tariff and National Tariff.

Let us understand the construction of the GST HSN code list.

Search HSN Code

Application of the code in India

Notification No. 78/2020 –Central Tax, dated 15 October 2020 was published by the Central Board of Indirect Taxes and Customs to inform that the implementation of HSN code is mandatory.

What If You Wrongly used The HSN Code?

If you have stated an inaccurate code as an exporter, it can lead to shipment difficulties during customs review. There can be problems like denial of import opportunities, heavy custom duty assessments, non-compliance punishments etc.

If you have used an incorrect HSN Code under GST, the buyer will not be able to claim his input tax credit. As per Section 31, an invoice must be flawless in all phases, including accurate HSN Code classification for declaring the input tax credit.

What is SAC?

Service Accounting Code (SAC) is different from the International HSN codes in several designs. The Central Board of Indirect Tax issues SACs to classify each service to identify the applicable tax rate on the respective services. These SACs are used to generate invoices for the services rendered, and the Servicing Accounting Code is used to classify services instead of goods. All services commence with the number 99, which recognizes the code as a SAC.

Services and Accounting Code (SAC) codes are organized according to the Harmonized System of Nomenclature, a universally acknowledged practice for collecting and codifying all the products in the world. This mode permits the acquiescence of GST based on international norms. It will provide a typical structure to the government for the excellent collaboration of data related to sales and purchase and analyze the same.

Format of SAC

The SAC code is a unique six-digit number that contains two numbers each for

  • Chapter
  • Heading
  • Sub-heading

Let us explain this with an illustration. The SAC code for Prevailing construction services of mines and industrial plants is 995425 that consists of

  • 99 is the code that indicates the chapter and constantly continues every time
  • 54 represent for civil engineering works under heading
  • 25 is for standard construction services for plants and mines under subheading

Difference between SAC and HSN code

S.N0 Parameters HSN SAC
1 Full-Form Harmonized System of Nomenclature Services Accounting Code
2 Used For It assists in the description of GST Rates relevant to goods. SAC is practised in recognizing GST rates relevant 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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