What is HSN codes?
HSN stands for harmonized System of nomenclature. This coding system is developed by World Customs Organization (WCO). This is a Global standard of Nomenclature of trading goods in international trade. The HSN is the codification of all tradable commodities into 20 broad sections with each chapter containing commodity of similar nature. Its vision of classifying goods from all over the World in a systematic and logical manner. It is a six-digit uniform code that classifies more than 5,000 products and is accepted worldwide. These set of defined rules is used for taxation purposes in identifying the rate of tax applicable to a product in a country.
HSN codes of goods alongwith rate of IGST, CGST, SGST: -
HSN has 21 sections, 99 chapter, 1,244 headings, and 5,224 subheadings. Sections and chapters are arranged in order of a product's degree of manufacture or in terms of its technological complexity. Natural products like animals and vegetables appear in the earlier sections; man-made or technologically advanced products like machinery appear later. Chapters have a similar structure. Take cotton, for example - Chapter 52. Cotton that has not been carded or combed appears earlier in the chapter; cotton as a woven fabric appears later.
- Each Section is a collection of various chapters. Sections represent a broader class of goods, and chapters represent a particular class of goods.
- Each chapter is further divided into various headings depending upon different types of goods belonging to the same class.
- Each heading contains products, which are ultimately assigned an HSN code.
- For better identification of goods, India and a few other countries use eight-digit codes for deeper classification.
- Some HSN codes also use dashes. A single dash (-) at the beginning of a description denotes an article that belongs to a group covered under a heading. A double dash (--) indicates that the article is a sub-classification of the preceding article that has a single dash. Similarly, a triple dash (---) or quadruple dash (----) indicates the article is a sub-classification of the preceding article that has a double dash or triple dash.
Rules for Classifying goods under HSN
In formatting a classification for a particular item, dealers must apply the General Interpretative Rules (GIR) in a sequential manner. Once a classification is complete, there's no need to continue applying the remainder of the rules. Moving on to the next rule is only necessary if a complete classification does not result from applying the previous rule. Classification is final once there is no ambiguity or confusion.
For classification purposes, a word should be construed in its popular sense and not in the strict or technical sense.
- Titles of sections, chapters, and sub-chapters are provided for ease of reference only.
- For legal purposes, refer to headings and sub-headings to drive classification.
- If the goods are incomplete/unfinished and have the characteristics of the finished product, classification is the same as that of the finished product.
- The heading shall also include removed/unassembled or disassembled parts.
- Any reference to a material or substance includes a reference to mixtures or combinations of that material or substance with other materials or substances.
- The classification of goods consisting of more than one material or substance shall take place as per Rule 3.
- Choosing a specific heading is preferred over a general heading.
- Mixtures/composite goods should be classified per the material or substance that gives them their essential character.
- If two headings are equally suited to the item, choose the heading that appears last in numerical order.
- If goods cannot be classified per the above rules, they are to be classified according to the goods to which they are most akin.
- Containers specifically designed for the article and suitable for long-term use will be classified along with that article, if such articles are normally sold along with such cases. For example, a camera case would fall under cameras.
- Packing materials and containers are also to be classified with the related goods except when the packing is for repetitive use.
What is SAC codes?
Services will be classified as per the Services Accounting Code (SAC). In case of services, for each type of service provided is given a unified code for recognition, measurement and taxation. These are known as SAC codes. It is issued by the Central Board of Excise and Customs. These codes are a combination of numbers to identify the service type and the rate at which it is to be taxed. SAC has been in existence to define each type of service and proper levy of service tax.
SAC codes for services alongwith rate of IGST, CGST, SGAT are:
HSN & SAC codes in GST
Under GST, all goods and services supplied in India have been classified - Goods are classified under the HSN Code and Services are classified under the SAC Code. Based on the HSN or SAC code, GST rates have been fixed in five slabs, namely 0%, 5%, 12%, 18% and 28%.
In the GST regime each invoice will have to mention HSN code for all goods which are sold and SAC code for all services which are provided. Businesses will thus, need to be aware of the HSN code list and SAC code list for all GST applicable supplies they are dealing in. Under GST, majority of the dealers will need to adopt two, four, or eight digit HSN codes for their commodities, depending on their turn-over the previous year. The following are the detailed requirements:
- Businesses with turnover of less than INR 1.5 crores - will not be required to use HSN codes
- Businesses with turnover between INR 1.5 crores and INR 5 crores - will be required to use 2-digit HSN codes
- Businesses with turnover equal to INR 5 crores and above - will be required to use 4-digit HSN codes
- Imports / Exports -8-digit HSN codes
- Services -5-digit SAC codes
Points to Note
- Small dealers under composition scheme will not be required to mention HSN / SAC codes in their invoices.
- HSN / SAC codes will need to be mentioned in invoice and mentioned in the GST tax return details, which will be uploaded on the GSTN portal.
- At the time of GST registration, the HSN / SAC codes of the supplies a business deals in, will need to be mentioned.
Along with India's move to GST come moves to an online taxation system and to HSN codes for classifying goods for taxation. It's all designed to bring about more uniform taxation as well as more ease of doing business. HSN codes will now be used in filing returns, on invoices, etc., rather than written descriptions. It will all require some prep work from professionals and taxpayers, but automated GST compliance solutions are available to help ease the transition.