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HSN Codes and GST Rates

What is HSN Code?

HSN stands for Harmonized system of Nomenclature. It is a system of classifying goods in a systematic & logical manner all over the world, conceived & developed by the World customs organization (WCO). It is a six digit uniform code assigned to more than 5000 products having acceptance in more than 200 countries all over the world. It covers 98% of goods all across the world & mainly used for identification of tax rate applicable to a product in a particular country. It is the best system adopted in international trade for classification & identification of goods. It helps in reduction of costs as well as efforts in tackling the complex procedures of international trade.

What is HSN Code under GST?

Let us understand the concept of HSN as per Indian context. India is a land of one nation, one tax now. GST is applied to all goods & services purchased by the end customers. Since 1986, India is using HSN in its central excise & customs system. Indian manufacturers needs to follow 3-tier HSN system under GST –

  • Persons having a turnover of less than Rs.1.5 Crore need not follow HSN.
  • Persons having turnover between Rs.1.5 Crore – Rs.5 Crore need to follow 2 digit HSN codes.
  • Persons having turnover of more than Rs.5 Crore need to follow 4 digit HSN codes.
  • Dealers involved in imports or exports have to mandatorily follow 8 digit HSN codes.

Is HSN code mandatory for all the dealers?

No, HSN code is not mandatorily for all the dealers. Following dealers are exempted from using HSN codes –

  1. Dealers having turnover of less than Rs.1.5 Crore.
  2. Dealers registered under the GST composition scheme.

Understanding HSN Codes

HSN codes are mainly used by dealers & traders. There are different HSN codes (2 digits, 4 digits, 8 digits) used by the dealers depending upon the criteria mentioned below –

  • Persons having a turnover of less than Rs.1.5 crore need not follow HSN.
  • Persons having turnover between Rs.1.5 crore – Rs.5 crore need to follow 2 digit HSN codes.
  • Persons having turnover of more than Rs.5 crore need to follow 4 digit HSN codes.
  • Dealers involved in imports or exports have to mandatorily follow 8 digit HSN codes.

HSN codes are classified into 21 sections, 99 chapters, 1244 headings & 5224 sub-headings under the HSN structure. It covers almost each and every good involved in the trade. Let us take an example of Nylon moulding powder having HSN code 39 08 90 10 to properly understand the HSN code system.

  1. First 2 digits “39” defines the chapters under HSN codes
  2. Next 2 digits “08” defines the headings under the chapters
  3. Next 2 digits “90” defines the sub-headings
  4. Next 2 digits “10” sub-classification of the product tariff heading during import & export of supply.

Note – HSN code having 6 digits has worldwide acceptance.

HSN Code Format

Why HSN codes are important at the time of filing GST return?

HSN codes help in saving your time & money while filing GST return. It plays an important role & reduces the manual efforts by automatically picking up the dealer registration details from HSN codes. Hence, it makes the process of GST return filing completely automated. It is done to help the dealers for whom it becomes hard to upload the description of the products being supplied.

Every dealer has to be very cautious while selecting the HSN code at the time of GST migration or going for a fresh registration. While filing GST return, it is important for every dealer to select the right HSN code for the selling product or service to minimize the errors. Here, accounting software comes into the picture. With the help of good accounting software, you can automate almost all the things which will not only reduce the manual errors but will also provide you a clear and an error free picture of your GST return filing.

HSN Code List