Digital signatures are now considered the norm. It is given the same significance as handwritten signatures. This blog will explain you about the digital signature certificate and how it can validate you for the MCA21 program.
HSN, which stands for Harmonised Commodity Description and Coding System, is a universal coding system created to assign codes to products and commodities worldwide. Despite its intimidating full form, the HSN code itself is relatively easy to comprehend.
The HSN serves as an internationally recognised coding system that enables the classification of products across the globe. Different countries and continents often have their own distinct standards and nomenclature for trade management policies. This can lead to confusion for individuals unless they are familiar with the corresponding codes on both ends.
To illustrate, a simple item like a lentil can be categorised as both a food item and a seed, depending on various cultural contexts and its usage by people.
The primary objective of HSN is to simplify this complexity. It achieves this by standardising the diverse representations through a hierarchical 6-digit code (typically ranging from 4 to 8 digits, with 6 digits being the most common).
How Does HSN Code Work?
The HSN code has widespread usage globally, particularly for taxation purposes. It serves as a valuable tool for determining the applicable tax rate for a specific product in any country. Additionally, enterprises can leverage the HSN code to calculate their tax benefits.
Recognised on a global scale, the HSN code also plays a crucial role in determining the quantity of imported and exported products in various countries. The code system encompasses over 5,000 commodity groups, each uniquely identified by a 6-digit code. It finds application in more than 200 countries, including India, for the following purposes:
- Ensuring uniform product classification
- Facilitating the calculation of custom tariffs
- Collecting up-to-date statistics on international trade
According to the World Customs Organisation (WCO), approximately 98% of merchandise involved in international trade is classified using an HSN code. The HSN code is backed by well-defined rules to ensure consistent and uniform product classification.
Why is HSN Important?
Introduced in 1988, the HSN code is a universal code utilised worldwide for the classification of goods. It consists of a 6-digit standardised code that has successfully categorised over 5,000 products. The primary purpose of the HSN code is to ensure a consistent and logical classification of manufactured goods across different countries.
The systematic categorisation of goods holds significant importance in facilitating international trade, with more than 190 countries currently implementing this code. As an international coding standard, the first six digits of the HSN code remain the same across all countries. However, each country may add additional digits to their HSN code for further classification. For instance, India adopts a 4, 6, and 8-digit classification system, whereas the United States employs a 10-digit HSN code.
The code covers every commodity across member nations of the World Customs Organisation (WCO) and maintains uniformity for goods across countries. However, depending on the nature of the classified goods, the HSN numbers may vary in certain countries.
Understanding the HSN Code
When exploring the HSN code, it is crucial to take thorough notes to aid in identifying the relevant codes for the products you sell. Let’s begin by examining an example code from section 2, which pertains to vegetable products: 1006.30.
A section represents the broadest level of classification, such as that of vegetable products. It is important to note that while it is not a direct component of the HSN code, each HSN code belongs to a specific section.
The first two digits of the code signify a chapter, which holds the second-highest position in the HSN code hierarchy. In the given example, the chapter is 10, corresponding to the category of cereals.
As you may be aware, cereals encompass various types, including wheat, barley, rice, and others. The subsequent two digits after chapter 10 represent the sub-heading, denoting a more specific classification. In this instance, the sub-heading is 06, indicating rice.
Further classification is applied to rice, distinguishing between types such as Basmati rice, polished rice, whole grain rice, and brown rice. To denote these distinctions, the following two digits after the period (.) are utilised
In the case of 30, it indicates semi-milled or wholly-milled polished or unpolished rice.
Consequently, when you communicate the HSN code 1006.30 to someone, they will comprehend that it pertains to this particular type of rice.
Services Accounting Code (SAC) in GST
The Services Accounting Code (SAC) is a code system used to classify services provided within India. It plays a crucial role in identifying, categorising, measuring, and determining the applicability of Goods and Services Tax (GST Registration) services in India.
In contrast, the Harmonised System Nomenclature (HSN) code is applicable to goods in India. The HSN code is a globally recognised code system developed by the World Customs Organisation (WCO) for the uniform classification of goods worldwide. On the other hand, the SAC code system is based on the United Nations Central Product Classification (UNCPC) but has been modified by the Central Board of Indirect Taxes and Customs (CBIC) to suit the Indian context.
The explanatory notes provided for the classification of services in India are derived from the UNCPC system, with some modifications recommended by the committee responsible for implementing the SAC system in India.
Under the GST regime, services classified under the SAC code are subject to taxation under five different tax slabs: 0%, 5%, 12%, 18%, and 28%. However, services not listed under the SAC code or those that have not been assigned any specific SAC code are subject to an 18% GST levy by default.
The allocation of distinct SAC codes to services allows the government to analyse the GST collections made for each specific service category, enabling effective monitoring and assessment.
HSN in GST
Here are the requirements based on transaction charges:
- For transaction charges up to 1.5 crore, no digits of the HSN code need to be declared.
- For transaction charges between 1.5 crore and 5 crore, two digits of the HSN code need to be declared.
- For transaction charges exceeding 5 crore, four digits of the HSN code need to be declared.
Why is HSN Important Under GST?
The objective of HSN codes is to establish a systematic and universally recognised framework for Goods and Services Tax (GST).
By implementing HSN codes, there will no longer be a requirement to provide a detailed description of goods during the filing process. This streamlined approach will save time and simplify the filing process, thanks to the automation of GST returns.
If a dealer or service provider’s turnover falls within the specified slabs, they must provide a summary of sales categorised by HSN (Harmonised System of Nomenclature) or SAC (Services Accounting Code) in their GSTR-1.
Conclusion
In conclusion, the HSN (Harmonised System of Nomenclature) code serves as a universal coding system for the classification of goods globally. Its purpose is to establish a systematic and widely accepted framework for Goods and Services Tax (GST). By implementing HSN codes, the need for detailed descriptions of goods is eliminated, streamlining the filing process and saving time. This code system allows for uniform classification of products, facilitates international trade, and enables the determination of tax rates applicable to specific products. Similarly, the SAC (Services Accounting Code) system is used to classify services under GST, ensuring accurate categorisation and taxation of services. Understanding and correctly using HSN and SAC codes is crucial for businesses to comply with GST regulations and simplify their tax reporting.
FAQs
What is the difference between an HSN code and a SAC code?
HSN codes are utilised for the classification of goods, while SAC codes are employed for services categorisation.
What is the full form of HSN?
The full form of HSN is the Harmonised System of Nomenclature.
Where are HSN codes required to be mentioned?
It is necessary to include HSN codes on invoices or Bills of Supply, as well as in the GSTR-1 return.
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