The World Customs Organization (WCO) developed the HS code, also known as HSN Code in India. HSN or HS Code signifies ‘Harmonised System of Nomenclature.’ It is a standardized system for classifying commodities globally in a systematic manner.
India has used HSN codes to classify commodities for Customs and Central Excise since 1986. Moreover, customs and GST both use HSN codes. HSN codes eliminate the need to upload product information, making GST returns easier to file.
For diverse commodities, there are distinct HSN codes. Along with other important aspects of HSN code, In this curated guide, we will cover HSN Code for Mineral Products such as cement HSN code, and so on (Section V (Chapter 25 to 27) along with other HSN concepts. It includes:
- GST and HSN Code
- HSN Code Working?
- HSN Code Importance?
- Understanding HSN Code Structure
- Who Requires HSN Code?
- HSN Code Provider?
- HSN Worldwide/ India
- Declaration of HSN Code of GST
- GST Rate and HSN Codes for Mineral Products
- Frequently Asked Questions
- Final Takeaways
GST and HSN Code
With the introduction of GST, a new requirement emerged for businesses to fill HSN Codes in tax invoices. Further, they need to report them in GST returns. Previously, HSN codes were only applicable for Central Excise and Customers.
Moreover, the GST rates reported by the CBIC are based on the HSN classification of items. As a result, in order to determine the GST Rate for your product, the business must first discover the relevant HSN Code.
Previously, the Central Board of Indirect Taxes ("CBIC") published the following provisions relating to HSN Code under GST:
The above notification has been updated to require 4/6-digit HSN Codes on tax invoices for products supplied beginning April 1, 2021.
Note these important points:
HSN Code Working?
HSN is a six-digit number that organizes over 500 products into a legal and logical hierarchy. The HSN is widely accepted in order to ensure uniform classification. In addition, it is supported by well-defined regulations.
The HSN classification is commonly used for taxation purposes. Because it aids in determining the tax rate that applies to a certain product in a nation under review. It can also be utilized in computations involving benefit claims.
Furthermore, it also applies to imports and exports. The HSN Code is used to determine the quality of all goods imported or exchanged through a country.
HSN Code Importance?
HSN's primary goal is to organize and arrange commodities in a logical and systematic manner. It further includes four-digit, six-digit, and eight-digit uniform code that classifies over 5000 products in India and is accepted internationally.
Interestingly, it could also be used to collect data and decipher problems. This further facilitates international trade by bringing in a uniform classification of items.
HSN Code is used in over 200 countries throughout the world. This excellent adoption rate can be attributed to HSN's advantages, which include:
- International trade statistics are gathered.
- Customers' tariffs will be based on a provision of a rational basis.
- Consistent Classification.
HSN is utilized to classify around 98 percent of worldwide trade stock. It further confirms its reputation as the best form of international categorization system.
Every product in every county has an HSN number, and practically all goods have the same number. Because HSN numbers are solely based on the nature of the commodities categorized, they can vary a little in various nations.
What is HSN Code Structure?
The HSN Code structure includes:
The HSN Code is categorized into 21 groups, Further, each of them is divided into 99 chapters. Then, the chapters are grouped into 1244 headings. Following that, the heads are divided into 5224 subheadings.
The following is how it works in the code:
- A two-digit HSN number is assigned to each chapter.
- A four-digit HSN Code is created from each two-digit HSN number.
- Finally, such four-digit HSN codes are further subdivided into six-digit HSN codes.
This system aids in the simplification and universal acceptance of GST. Nevertheless, HSN codes for commodities with six digits are widely used. Customs and GST both— use the same HSN codes. For GST purposes, the codes established in the Customs tariff are employed. The CBIC website has these documents available.
Who Requires HSN Code?
HSN Code is a suitable way of identifying items for both domestic and international trade. It is mainly because the HSN code is an internationally recognized standard for classifying products.
Moreover, these codes have been provided by importers and exporters in their import and export documents. Traders are more likely to use HSN codes found on invoices supplied by manufacturers or importer suppliers.
In addition, HSN codes are not required for commodities sold by dealers having a turnover of less than Rs 1.5 crore. On the other hand, two-digit HSN codes are used for commodities by businesses with a turnover of between Rs 1.5 crore and Rs 5 crore.
Eventually, this procedure aids the government in formulating macroeconomic policies concerning the trading of certain commodities.
HSN Code Provider?
DGFT (Directorate General of Foreign Trade) is responsible for any formulations, modifications, or additions to HSN Codes.
Moreover, any changes required such as product description, the insertion of new codes, the removal of defunct codes, and so on are all done on a regular basis. It will help to perfect HSN Codes.
HSN Worldwide/ India
The HSN system is utilized by 200+ countries and economies for a variety of reasons, including:
- International trade statistics are collected.
- For their Customs taxes, they use a uniform classification base.
- The HSN is used to classify about 98 percent of items in international trade.
Furthermore, the majority of countries accept the Harmonized System of Nomenclature. Almost all products have the same HSN number. However, depending on the nature of the commodities categorized, the HSN number used in different countries differs slightly.
India has been a member of the World Customs Organization since 1971. (WCO). It uses 6-digit HSN numbers to classify items for Customs and Central Excise.
However, Customs and Central Excise later added two extra digits to the numbers to make them more accurate. It further resulted in a total of eight-digit categorization.
Declaration of HSN Code for GST
HSN Code declared from 1st April 2021:
Check the table below for your reference:
*Annual aggregate turnover for the preceding financial year, i.e., for reporting invoices in FY 2021-22, the referenced turnover must be FY 2020-21.
GST Rate and HSN Codes for Mineral Products
In the following table, we have categorized all the GST Rates and HSN Codes for mineral products — plastering material, salt sulphur; earth and stone, lime, cement HSN code, clay, and marble — (Section V (Chapter 25 to 27).
Frequently Asked Questions (FAQs)
1. Is the HSN Code compulsory for all dealers?
HSN codes are not compulsory to be used in the following situations:
- HSN Codes are not required for dealers with an annual turnover of less than INR 1.5 crores
- Dealers who are registered under the GST Composition Scheme are free from using HSN Codes.
2. How can I obtain HSN notifications?
The government provides notifications on HSN. You can further obtain updates on the Ministry's website. Previously, the ACES website used by the Central Board of Excise and Customs (CBEC), is in charge of its activities.
3. Why HSN is crucial during the time of filing?
Due to the fact that GST returns are totally automated, it will be difficult for dealers to provide product descriptions. As a result, HSN Codes will be automatically retrieved from the dealer's registration information, saving time and effort. When migrating to GST or registering for the first time, dealers must choose the relevant HSN code.
4. Is it important to adhere to HSN?
HSN codes are an internationally accepted method for coding and classifying all of the world's products. It further brings GST into line with worldwide standards and ensures appropriate tax collection.
Moreover, HSN uses a rational and methodical approach to classification, decreasing the chances of misinterpretation.
Furthermore, a uniform structure allows governments of different nations to share and evaluate data on commodity purchases and sales. They can then decide on macroeconomic policies relating to vital commodities based on the results of this investigation.
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We have summarised important points for your reference. Check them out:
- HSN or HS Code signifies ‘Harmonised System of Nomenclature.’
- India has used HSN codes to classify commodities for Customs and Central Excise since 1986.
- The GST rates reported by the CBIC are based on the HSN classification of items.
- The HSN classification is commonly used for taxation purposes.
- The HSN Code is used to determine the quality of all goods imported or exchanged through a country.
- Every product in every county has an HSN number, and practically all goods have the same number.
- HSN codes are not required for commodities sold by dealers having a turnover of less than Rs 1.5 crore.
- Two-digit HSN codes are used for commodities by businesses with a turnover of between Rs 1.5 crore and Rs 5 crore.