Do you want to know about HSN Code? Read this blog to learn more.
HSN Chapter-Wise Code List vs Section Wise Code List are important aspects in a sales tax known as the Goods and Services Tax is charged on all purchases made within a country (GST). This method is more efficient since it eliminates the need to file separate federal and state tax returns. However, businesses must collect and return GST to the government on their customers’ behalf.
With the motto “One Nation, One Tax” in mind, all federal taxes (Excise duty, sales tax, service tax, surcharges and cesses) and state taxes (State VAT/sales tax, Purchase tax, Luxury tax, Entertainment tax, Sin tax, etc.) were rolled into a single GST.
A Tax on the Value of Finished Products and Services
The Goods and Services Tax is arguably the most significant reform to India’s tax system (GST). The Products and Services Tax (GST) was implemented to standardise the taxation of goods and services across India. As a result, it helped prevent a cascade effect from various federal and state taxes.
- Every purchase is hit with the Goods and Services Tax (GST), but certain things are more heavily taxed than others.
- The Goods and Services Tax (GST) rate falls into five distinct tax bands.
Since we’re outside the country’s tax jurisdiction, we may shop until we drop without worrying about adding to the deficit.
- At the current rate of 5%, all of our purchases will be subject to tax.
- Our consumption of services and goods falls within this tax bracket, meaning we must pay 12%.
- Our spending is subject to an extra 18% in taxes now that we’re in this tax bracket. Any money we spend in this region will be hit with a 28 per cent sales tax.
For example, the 3% cap does not apply to gold and other precious metals because of their rarity and intrinsic value.
There have been 34 meetings of the GST council, during which several products have been reclassified. Sales taxes on some products went from 0% to 5%, while tariffs on other products went from 28% to 18%.
Understanding HSN Codes & SAC Codes Under India GST
Under India GST, HSN codes are used to classify goods for the purpose of determining the applicable GST rate. SAC codes are used to classify services for the purpose of determining the applicable GST rate
What is HSN Code?
The World Customs Organization developed the “Harmonized System of Nomenclature,” or HSN for short (WCO). The International Customs Organization (WCO) created HSN codes to standardise classifying products. If this issue can be fixed, trade between the countries domestically and internationally will benefit. HSN codes are used in international trade for more than 20,000 different products. WCO’s updated Harmonized System of Nomenclature codes are used in more than 90% of all global businesses today. Following their acceptance of the HSN codes system, India is now a full member of the organisation.
What makes HSN crucial in GST?
There has been extensive use of Harmonized System of Nomenclature codes in international trade since they were first introduced. Since adopting GST, our country has seen an increase in HSN uniformity and foreign exchange. The norms of the global system are now being followed.
HSN codes expedite the customs clearance procedure and reduce associated costs.
All taxpayers should have access to HSN codes to comprehend better the GST rates that apply to different products. Using the HSN codes is mandatory when filling out the GSTR forms.
Is the HSN code essential?
The majority of Harmonized System of Nomenclature code users are in the commercial sector. Following these guidelines, we will select an appropriate HSN code length (2-digit, 4-digit, or 8-digit).
- There is no need to use HSN codes if your company’s yearly revenue is less than Rs.1.5 crores.
- Businesses and individuals with yearly revenue of Rs.1.5 Crs.Only 2-digit HSN codes may be used for procedures with a Cr. value of 5 or less.
- If their yearly sales are beyond Rs.5 Cr, they will need to switch to a 4-digit HSN code.
- The eight-digit HSN code is required for all aspects of international trade.
Categorising products into categories recognised by Harmonized System of Nomenclature
- There Are 21 Steps to This Procedure
99 Books - This article has 1244 subheadings.
- There are a total of 5224 subheadings on the list.
Example:
You can buy just about anything you’d find at a store.
Powdered Nylon for Use in Molds (HSN Code: 39 08 90 10)
Chapter 39 is represented by the first two digits of the HSN code.
The following numbers correspond to the chapter titles: (8).
The HSN code is six digits long and is recognised worldwide, with the next two digits (90) identifying the headings.
The following two digits (10) denote a more specific sub-classification for imported or exported goods.
If you have the HSN codes on hand, filing your GST returns can be automated, saving you time and money.
Why is the HSN CODE list so important in India?
If India adopts HSN after GST is implemented, the country will be on a level with the other countries utilising the same system. The Harmonized System (HS) code will help make GST consistent and universally understood.
It will have a net cost saving on international trade due to standardising customs and trade procedures. Inputting the HSN codes alone streamlines the trading procedure because the system will obtain the applicable tax rates for the commodities in question under the GST structure. For this reason, providing the correct HSN codes is crucial while signing up for GST.
Challenges
Before this point, The GST council convenes 34 times yearly, and each gathering has a unique purpose. Getting the word out about GST and convincing businesses to use HSN codes in transactions has taken the government almost two years. Many goods are changing tax brackets as their commercial and consumer activity dictates. All of the different tax brackets share the same Harmonized System of Nomenclature code.
Although GST is widely accepted, many businesses have yet to implement it. There was a significant obstacle provided by the company’s indecision between the old method and the new Harmonized System of Nomenclature code system. The general lack of information among rural inhabitants and business owners significantly contributes to the present system’s flaws.
What is the Harmonized System of Nomenclature (HSN)?
The Harmonized System of Nomenclature (HSN) is an internationally recognized system of names and numbers used to classify traded products. It was developed by the World Customs Organization (WCO) to facilitate international trade by providing a uniform system for classifying goods.
The HSN is a hierarchical system that assigns a unique six-digit code to each product. The first two digits represent the chapter, the next two digits represent the heading, and the final two digits represent the subheading. This system allows for easy identification and classification of products, which is essential for customs and trade purposes.
There are 21 sections of the HSN code. Here’s a brief list –
| Section 1 | Live Animals |
| Section 2 | Vegetables and their products |
| Section 3 | Animal or vegetable fats |
| Section 4 | Prepared foodstuffs, Manufactured tobacco |
| Section 5 | Mineral products |
| Section 6 | Chemical products |
| Section 7 | Plastic and rubber products |
| Section 8 | Raw hides and skins, Leather, Furskins and articles thereof, saddlery and harness, travel goods, handbags and similar containers, articles of animal gut ( other than silkworm gut ) |
| Section 9 | Wood and articles of wood, Wood charcoal, Cork and articles of cork, Manufacturers of straw, of Esparto or of Other Plaiting Materials |
| Section 10 | The pulp of wood or of other Fibrous Cellulosic Material, Recovered ( Waste and scrap ) paper or paperboard, paper and paperboard and articles thereof |
| Section 11 | Textile |
| Section 12 | Footwear, Headgear, Umbrellas, Sun Umbrellas, Walking-sticks, seat-sticks, whips, riding-crops, and parts thereof, Prepared feathers and articles made therewith, Artificial flowers, Articles of human hair |
| Section 13 | Articles of stone, plaster, cement, asbestos, mica, or similar materials, ceramic products, glass and glassware |
| Section 14 | Natural or cultured pearls, precious or semi-precious stones, precious metals, Metal clad with precious metal, and articles thereof, Imitation Jewellery, Coins |
| Section 15 | Base Metals and Articles of Base Metal |
| Section 16 | Machinery and mechanical appliances, electrical equipment, parts thereof, sound recorders and reproducers, television image and such recorders and reproducers, and Parts and Accessories of such article |
| Section 17 | Vehicles, Aircraft, Vessels and Associated Transport Equipment |
| Section 18 | Optical, Photographic, Cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, clocks, and watches, musical instruments, parts and accessories thereof |
| Section 19 | Arms and ammunition, parts and accessories thereof |
| Section 20 | Miscellaneous Manufactured Articles |
| Section 21 | Works of art, Collectors’ Pieces a, d Antiques |
What Is Service Accounting Code (SAC)?
The Service Accounting Code (SAC) is a code issued by the Central Board of Indirect Tax & Customs (Service Tax Department) to categorize and distinguish various services provided. Similar to the Harmonized System of Nomenclature (HSN) used for products, SAC codes provide a unique identification for each type of service offered.
Service providers should utilize the SAC code to understand the applicable tax on the services rendered and received accurately.
The SAC codes are structured based on the internationally recognized Harmonized System of Nomenclature, which is used to classify and codify products worldwide. This alignment allows for GST compliance in line with international standards.
Who Can Use HSN & SAC Codes under GST?
According to Notification No. 78/2020 – Central Tax dated 15th October, 2020, taxpayers must disclose a least 4 digit or 6 digit HSN Code in table-12 of GSTR-I based on their Aggregate Annual Turnover (AATO) in the preceding Financial Year.
*In the case of B2C invoices, HSN/SAC is optional for turnover below Rs. 5 Crore
Structure of HSN Code
The HSN code has a well-defined structure consisting of 21 sections, 99 chapters, 1244 headings, and 5224 subheadings. Indian manufacturers are required to adhere to the three-tiered HSN structure.
Within the HSN structure, there are 21 groups, which are further categorized into 99 chapters. These chapters are then divided into 1244 headings, and each heading is further subdivided into 5224 subheadings. This hierarchical classification system allows for precise identification and classification of goods and services for taxation and regulatory purposes.
Structure of SAC Code
Here is the structure of SAC codes:
First two digits: The first two digits of a SAC code represent the chapter in the Harmonized System (HS) classification. The HS classification is a system of classifying goods that is used by countries around the world for the purpose of international trade.
Next two digits: The next two digits of a SAC code represent the heading in the HS classification. The heading is a more detailed classification of goods than the chapter.
Last two digits: The last two digits of a SAC code represent the subheading in the HS classification. The subheading is the most detailed classification of goods under the HS classification.
Where to Mention HSN / SAC Code?
Sure, here is the structure of HSN codes:
First two digits: The first two digits of an HSN code represent the chapter in the Harmonized System (HS) classification. The HS classification is a system of classifying goods that is used by countries around the world for the purpose of international trade.
Next two digits: The next two digits of an HSN code represent the heading in the HS classification. The heading is a more detailed classification of goods than the chapter.
Last two digits: The last two digits of an HSN code represent the subheading in the HS classification. The subheading is the most detailed classification of goods under the HS classification.
-
GST Registration
During the GST registration process, businesses are required to declare the type of goods and services they deal with, and this necessitates providing the appropriate HSN/SAC code.
-
GST Rate
The HSN/SAC code allows taxpayers to easily determine the applicable GST rate for the specific goods or services they are dealing with.
-
GST Invoice
When issuing invoices for goods and services, sellers must include the relevant HSN/SAC code based on the total turnover of their business.
-
GST Returns
During the filing of GST returns, taxpayers are obligated to report a summary of HSN/SAC details. This summary provides information about the goods and services sold, categorized according to the reported HSN/SAC codes.
Why Are HSN and SAC Codes Important for Business?
The HSN and SAC codes play a crucial role in business by facilitating the identification of the applicable GST rates for specific goods and services. These codes are mandatory for registration purposes and help distinguish various goods and services among the vast array available in the market.
Conclusion
The primary distinction between HSN and SAC codes lies in their focus, where HSN codes are specific to goods and services, while SAC codes pertain solely to services. Additionally, they differ in the number of digits in their codes and their respective relevance. For instance, the HSN code comprises 8 digits, whereas the SAC code comprises 6 digits. For helping figuring out HSN/SAC codes for your GST registered business, use our free HSN finder tool.
What is the purpose of HSN code?
The HSN code, which stands for Harmonized System of Nomenclature, is a code used to classify goods and services for taxation purposes. It is a standardized system that helps in the identification and categorization of products based on their nature, type, and characteristics.
When is HSN code mandatory in GST?
It is mandatory for the taxpayers to report a minimum 4-digit or 6-digit HSN Code in table-12 of GSTR 1.
What is the penalty without HSN code?
Failure to mention or incorrectly mention the HSN code in GST returns can result in penalties. According to Section 125 of the CGST Act, taxpayers who do not comply with the amendments related to HSN codes may be liable to pay a penalty of Rs. 25,000 under CGST. Additionally, non-mentioning or wrong mentioning of the HSN code can result in a penalty of Rs. 50,000 (Rs. 25,000 under CGST and Rs. 25,000 under SGST)
Also, Read;
