Harmonised System of Nomenclature GST

The Harmonized System of Nomenclature (HSN) is a standardized system used internationally for the classification of goods. In India, the HSN system is used under the GST (Goods and Services Tax) regime to categorize goods for taxation purposes. Each product is assigned a unique HSN code, which helps in identifying the applicable tax rate for that product.

Structure of HSN Code

The HSN code typically consists of six digits:

• The first two digits represent the chapter under which the goods are classified.
• The next two digits represent the heading within that chapter.
• The last two digits represent the sub-heading within that heading.

HSN Code for Goods

• Two-digit chapter: Represents the broader category of goods.
• Four-digit heading: Represents the specific group within the chapter.
• Six-digit sub-heading: Represents the specific product within the group.

Examples of HSN Codes

• Sugar (HSN 1701):
  • 17: Sugars and sugar confectionery
  • 01: Cane or beet sugar and chemically pure sucrose, in solid form
• Soap (HSN 3401):
  • 34: Soap, organic surface-active agents, washing preparations
  • 01: Soap and organic surface-active products

Usage in GST

Under the GST regime, businesses must use HSN codes in their GST returns, invoices, and other documents to specify the goods being supplied. The number of digits required in HSN codes depends on the turnover of the business:

• Businesses with turnover up to ₹1.5 crore: Not required to use HSN codes.
• Businesses with turnover between ₹1.5 crore and ₹5 crore: Required to use 2-digit HSN codes.
• Businesses with turnover above ₹5 crore: Required to use 4-digit HSN codes.
• Export and import transactions: Required to use 8-digit HSN codes.

Benefits of Using HSN Codes

1. Standardization: Ensures uniform classification of goods across different countries.
2. Simplification: Simplifies the process of identifying applicable tax rates for goods.
3. Compliance: Helps businesses comply with tax regulations and avoid disputes.

How to Determine the Correct HSN Code

1. Identify the product: Understand the specific characteristics and use of the product.
2. Refer to the HSN classification: Use the HSN code directory to find the relevant chapter and heading.
3. Check updates: Ensure that the code is up-to-date with the latest GST notifications and amendments.

Resources

• GST Council website: Provides detailed HSN code lists and updates.
• Customs Tariff Act: Contains the full HSN classification system.
• Tax professionals: Consulting a tax expert can help in accurately determining the HSN code.

Using the correct HSN code is crucial for accurate tax calculation and compliance under the GST regime.