Under the GST, all goods and services that are transacted in India are categorised under the HSN code system or the SAC Code system. The goods are classified under the HSN Code and services are under the SAC Code. Based on HSN or SAC code, the GST rates have been fixed in five slabs, that is NIL, 5%, 12%, 18% and 28%.
The HSN code or the Harmonized System Nomenclature code number is an internationally adopted commodity description and coding system which has been developed by the World Customs Organization (WCO). The HSN code is used by over 200 countries as a basis for their customs tariffs. Presently, over 98% of the merchandise in international trade is classified under the HSN code With the HSN code acting as a universal classification for goods. The Indian Government has decided to embrace the use of HSN code for classification of goods under the GST and the levy of GST.
The HSN Code 2017 edition is the presently valid version applied in the international trade transactions. Before the implementation of the HSN Code- 2017 edition, the HSN Code – 2012 edition was applied in all the international trade transactions. The HSN Codes are initially classified into sections and chapters. It contains the six-digit codes of the Harmonized System. To look up the HSN code one can use the HSN code finder or drill-down from Section to Chapter to the HSN Code.
The HSN system is being used by more than 200 countries and economies for the following reasons:
- Uniform classification
- Base for their Customs tariffs
- Collection of international trade statistics
Over 98% of the merchandise in the international trade is classified in terms of the HSN.
The Harmonized System of Nomenclature number for each commodity is accepted by most of the countries. The HSN number stays same for almost all goods. But, the HSN number used in some of the countries varies a little, based on the nature of the goods classified.
HSN in India
India is a member of the World Customs Organization (WCO) since 1971. It was formerly using 6-digit HSN codes to classify the commodities for Customs and Central Excise. Later the Customs and Central Excise added two more digits to make the codes more accurate, resulting in an 8 digit classification.
For example: Understanding the HSN Code
The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 subheadings.
- Each of these Sections are divided into Chapters. Each Chapter is further divided into Headings. An each Heading is divided into Sub Headings.
- The Section and Chapter titles describe broad categories of goods, while headings and subheadings describe the products in detail.
The SAC Code or Services Accounting Code is a classification system for the services developed by the Service Tax Department of India. Using SAC code, the GST rates for the services are fixed in five slabs that is 0%, 5%, 12%, 18% and 28%. If a service is not exempted from the GST or if the GST rates are not provided, then the default GST rate for services of 18% will be applicable.
Q. What is the HSN Code?
The Harmonized Commodity Description and Coding System is normally referred to “Harmonized System of Nomenclature” or simply “HSN”. It is a multiuse international product nomenclature developed by the World Customs Organization (WCO). It first came into effect in 1988.
Q. How does the HSN code work?
The HSN code has about 5,000 commodity groups, and each is identified by a six-digit code, this is arranged in a legal and logical structure. It is supported by well-defined rules to achieve a uniform classification.
Q. Why is the HSN important?
The main purpose of the HSN is to classify goods from all over the World in a systematic and a logical manner. This brings in a uniform classification of the goods and enables international trade.
Q. What is UQC?
UQC stands for the Unique Quantity Code. In simpler terms, it is a unit of measurement such as 1 kilogramme of wheat, 1 litre of oil etc.
Q. What is UQC in GST?
As per the CGST Rules, any tax invoice, credit note, debit note must have UQC or the quantity unit description.
Q. Why does one need a GST Rate Finder?
The Indian Taxation System has categorized over 1211 goods for levy of the GST under 6 broad categories or tax-slabs. These are 0% or No Tax, 5%, 12%, 18% and 28%. It is very significant to know in which of these categories your goods or product has been classified. One can easily find that with a search using the commonly used word for the product. This Rate Finder Tool can be used to find the HSN Code for the goods or the products for invoicing purposes.
Q. What is the HSN Code in GST?
The Harmonized System of Nomenclature or HSN, is a 6-digit uniform code allocated to over 5000 goods and is commonly accepted. It was conceived and developed by the World Customs Organization (WCO) in order to classify the goods from all over the world in a systematic way. It has been adopted in over 200 countries, and it covers around 98% of all goods produced and traded in, under its ambit.
Q. How does one interpret the HSN Code for a good/product?
Under the universal HSN Code list, every good is assigned with a 6-digit code which is unique in nature. In India 2 more digits are added to these 6 for further classification.
For example: In all there are 21 sections comprising 99 chapters divided into 1244 headings and 5224 sub-headings. 09024020 is the code for Green Tea sold as leaf in bulk, here 09 is the Chapter, 02 is the heading and 40 is the product code for Green Tea. The last 2 digits of 20 is the code allotted by the Indian taxation system for Green Tea sold in leaf form and in bulk. If it were Green Tea bags then the last two digits of the HSN code would have been replaced with 40 instead of 20.
Q. What is SAC Code?
The meaning of SAC Code can be understood in the light of the HSN Code which is a classification rule for goods. The SAC code list classifies the services which come under the ambit of GST rate list.
Q. What is the relation of the HSN Code with GST Rate?
For a correct and accurate levy of the GST rates which are prevalent in India, the correct HSN or SAC code is necessary at the time of Return filing. This will ensure a seamless compliance of the GST rules.
Q. Is the HSN Code compulsory for me?
For all businesses that deal with the import/export of good it is mandatory to use the 8-digit HSN Code. All Indian manufacturers who have an annual turnover of less than INR 1.5 crores, are exempted from mandatorily using the HSN Codes for their goods. Apart from them, the dealers registered under the Composition Scheme of the GST are also exempted from using HSN Codes.