The Harmonised System of Nomenclature (HSN) code is a vital aspect of trade in India. This code helps in the systematic classification of goods and services, making it easier for businesses to identify the applicable tax rates and comply with legal requirements.
Overview on HSN Codes
If you are an entrepreneur in India, you must have heard about the HSN code. Harmonised System of Nomenclature (HSN) is a code system developed by the World Customs Organisation (WCO) to classify goods traded internationally. The Indian government has also adopted the HSN code system to classify goods for tax purposes under the Goods and Services Tax (GST) regime. Know about HSN code in India in this blog!
HSN code is a six-digit code system that is used to classify goods based on their nature, type, and usage. The system was developed by the World Customs Organisation (WCO) in 1988 to facilitate international trade and customs clearance. It is currently being used by over 200 countries worldwide, including India.
The Indian government has adopted the HSN code system to classify goods for tax purposes under the Goods and Services Tax (GST) regime. Every product and service has a unique HSN code assigned to it. HSN codes are used to determine the GST rate applicable to a particular product or service. It is mandatory for businesses with a turnover of more than ₹1.5 crores to mention the HSN code of their products or services in their GST returns.
Why is HSN Code Important?
The HSN code system is crucial for businesses in India for the following reasons:
Classification of Goods
HSN codes help businesses classify their products and services accurately for tax purposes. The system ensures that products are classified based on their nature, usage, and type, making it easier for businesses to determine the GST rate applicable to them.
GST Compliance
The HSN code system is essential for GST compliance. Businesses are required to mention the HSN code of their products or services in their GST returns. Non-compliance with HSN code provisions can result in penalties and legal action.
International Trade
HSN codes are used worldwide to classify goods for customs clearance. Indian businesses can benefit from the global use of the HSN code system by ensuring that their products are classified correctly, making it easier to trade internationally.
HSN Code Structure
The HSN code system is based on a six-digit code structure. Each digit in the code represents a specific category of the product or service. Here is a breakdown of the HSN code structure:
Chapter
The first two digits of the HSN code represent the chapter of the product or service. There are 21 chapters in the HSN code system that classify products and services based on their nature.
Heading
The next two digits represent the heading of the product or service. There are over 1000 headings in the HSN code system that classify products and services based on their usage.
Sub-heading
The next two digits represent the sub-heading of the product or service. There are over 5000 sub-headings in the HSN code system that classify products and services based on their type.
Tariff Item
The final two digits represent the tariff item of the product or service. There are over 9000 tariff items in the HSN code system that classify products and services based on their specific features.
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How to Find HSN Code for Your Product or Service?
Visit the official GST portal
The first step is to visit the official GST portal at www.gst.gov.in. Once you’re on the homepage, click on the ‘Services’ tab and select ‘Search HSN/SAC Code.’
Enter your product or service
Next, you need to enter the name of your product or service in the search bar. You can also search by the chapter or section if you know it.
Select the correct code
The search will display a list of possible HSN codes. You need to select the one that best describes your product or service. Make sure to verify the description and the tax rate associated with the code.
Verify the code
Once you have selected the HSN code, make sure to double-check it with the description of your product or service. If you’re still unsure, you can seek help from a tax professional.
Use the code in your invoices
Once you have the correct HSN code, make sure to use it in all your invoices and other GST filings. This will ensure that you comply with the GST regulations and avoid any penalties or fines.
Conclusion
In conclusion, the HSN code plays a crucial role in the taxation process in India. It is important for businesses to understand the significance of the HSN code and classify their products and services accordingly. Failure to do so can result in legal repercussions and penalties. Therefore, businesses should make sure they are following the correct HSN code guidelines and updating their systems regularly. With the implementation of the GST system, the HSN code has become even more important and businesses need to adapt to this change to ensure smooth operations. For any legal guidance, Vakilsearch experts are ready to assist you.
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