Equipping Modern Enterprises with Powerful GST, E-Way Bill & E-Invoicing Solutions

logo image
  • GST Filing & Reconciliation
  • E-Way Bill Automation & E-Way Bill APIs
  • E-Invoicing Simplified
  • GSTIN Search
  • Expert Assistance
Understanding HSN Codes Under GST

Understanding HSN Codes Under GST

Until 30th June 2017, goods coding system in India prevailed in its primeval stages and thousands of products across various states had their own coding mechanisms for classifying goods, until the advent of the new generation taxation regime – GST, which to function, demands a fully uniform and organized classification of goods, applicable PAN India and which is followed internationally too. The adoption of the HSN [ Harmonised System of Nomenclature] Codes will bring utmost clarity, transparency and enhanced efficiency in the way goods were classified and understood.

What is an HSN Code?

Harmonised System of Nomenclature [HSN] is a six-digit uniform code that classifies 5000 + products worldwide. It was thought of and developed by the World Customs Organization [WCO] with a vision of standardizing the classification of all the goods prevailing worldwide, in a logical and systematical manner. HSN plays a crucial role in the taxation of a country and helps to get the accurate rate of tax applicable on any product in a country. HSN is also referred to analyze a specific product movement across the world and assists in determining the volume of any product exported or imported.

The six-digit code is an organized amalgamation of different sections – drilled down to chapters – further classified into headings and subheadings.

HSN is by far the best known logical system of classification and identification of more than 98% of goods in the world and is widely acknowledged in 200 + countries across the world.

HSN in Indian Context:

The new generation, GST module in India is designed for syncing only with the HSN codes and every product or service will get classified accordingly. Although, While the Central Excise and Customs department has been using it since 1986, the new GST regime has 2 more digits added to the code, giving it more clarity and detail. The Indian businesses will use a 3 layered HSN configuration.

Applicability of HSN:

  • Businesses with an aggregate turnover of up to  1.5 crores in the preceding financial year do not need any HSN code.
  • Businesses with an aggregate turnover between 1.5 crores and 5 crores in the preceding finanical year will use a 2 digit HSN code.
  • Businesses with an aggregate turnover of >5 crores in the preceding financial year will use a 4 digit HSN code.

However, with effect from 01.04.2021, the position will stand as follows:

  • Businesses with an aggregate turnover of up to 5 crores in the preceding financial year will have to use a 4 digit code for B2B supplies. It is optional for B2C supplies.
  • Businesses with an aggregate turnover > 5 crores in the preceding financial year will have to use a 6 digit code for both B2B and B2C supplies.

Decoding Digits of the HSN Code:

The entire HSN module consists of 21 sections, which have 99 chapters, broken down into about 1244 headings and 5224 sub-headings. The technical and technological intricacy of a product defines, which section and chapter, they should fall into. Like, all the natural products like vegetables, animal produce, etc. take the first seats in the initial sections, whereas the complex products like heavy industrial machinery, etc. lie towards the end. Processed cotton comes earlier than natural or uncombed cotton.

While the sections hint about the broader family, the chapters go into deep details and categorize more specifically. For instance, Section 11 talks broadly about textile and its produces while Chapter 62 of Section 11 particularly describes accessories for men and women.

Furthermore, the chapters have been bifurcated into headings and sub-headings. All headings have a product attached to them, for example, in Chapter 62, Heading 13 covers all types of textile handkerchiefs whereas heading 14 covers scarves and shawls of all types. Digging a bit deeper, handkerchief made of a material other than textile also fall under Chapter 62 but with a different heading and the HSN code for the same is 62 13 90, where 90 is the product code for handkerchiefs made of other textile materials. The GST Council has put two more digits for a micro classification of the products. For a handkerchief made of human fiber, the HSN code is 62 13 90 10 and for a handkerchief made of silk or silk waste, the HSN code is 62 13 90 90.

The HSN Codes in GST include 233 sets of amendments bifurcated as follows:

  • 85 in the agricultural sector
  • 45 in the chemical sector
  • 13 in the wood sector
  • 15 in the textile sector
  • 6 in the base metal sector
  • 25 in the machinery sector
  • 18 in the transport sector
  • 26 in other miscellaneous sectors

Should you need more specific advice and consultation about the HSN Codes or anything about the technical or technological aspects of GST is bothering you, the deft team at Masters India is here to help with a smile. Please feel free to connect with Masters India at info@mastersindia.co | +91 9773706838

GST Compliance