What do you mean by HSN code?
HSN or Harmonized System of Nomenclature is a system that classifies different categories of goods. It was set by World Customs Organization (WCO) and took effect in 1988. This 6-digit code is considered the global standard when identifying and naming goods. Moreover, it classifies more than 5000 products for tax calculation purposes.
What is the key role of HSN?
Firstly, since the code is accepted internationally, it serves as a great way to identify foreign and domestic goods. Further, it is used to gather information and understand domestic and foreign trade in an effective manner. As a result, the government is able to decide macroeconomic policies regarding commodity trade.
Understand the workings of HSN code
HSN code covers around 5000 different community groups. Each of them is recognized by a 6-digit code to classify commodities for Excise and custom purposes. In addition, they can be used for GST purposes too. Also, since it is accepted worldwide, it is a great way to establish uniformity.
HSN as international code
HSN as an international code is used by more than 200 countries worldwide. The idea of adoption rate can be ascribed to the following benefits of HSN:
- Assembling of international trade statistics
- Providing a rational basis for Custom tariffs
- Uniform classification
In fact, around 98% of the international stock trade can be classified in HSN terms. This clearly shows the reputation of HSN as the best form of international classification.
HSN code in India
India first became the member of the World Customs Organization in 1971. Initially, it contained only 6-digit as its HSN code to classify Central excise duty and merchandise for customs. However, to make it more precise, the central and custom tax authorities added two more digits to the code. This resulted in an 8-digit HSN classification, which classifies almost all goods in India and facilitates the use of HSN numbers for GST calculation. In addition, it is also used in computing VAT.
Discussion of HSN code in depth
The HSN code contains:
- 21 sections
- 99 chapters
- 1244 headings
- 5224 subheadings
It means the HSN code structure has 21 groups. Each of these groups are divided into 99 chapters. Further, these chapters are classified into headings that are 1244 in total. Subsequently, there are subheadings too, which is 5224 in number.
The section and chapter titles are set in a way that talks about the broad category to which the good belongs. On the other hand, heading and subheadings describe the good in detail.
For clarity, let’s say there is an HSN code 72.02.01
In this case, the initial two-digit 72 describes that the good belongs to the iron and steel category. Looking at the next two digits, 02, it refers to the ferroalloy division. The last 01 digits is the product code for ferroalloy products under iron and steel materials.
Further, India adds two more digits for extended classification. For example, for India, the eight-digit code will be 72.02.99.11 for ferrophosphorus under other ferroalloy products.
HSN in GST
HSN codes in GST tax invoices as of 31st March 2021
| Sl. No | Aggregate Turnover in the preceding FY 2021 | Number of HSN code |
| 1. | < 1.5 crore | 0 |
| 2. | 1.5 to 5 crores | 2 |
| 3. | Exceeding 5 crores bracket | 4 |
HSN codes in GST tax invoice as of 1st April, 2021
| Sl. no | Aggregate Turnover in the preceding FY 2021 | Number of HSN/SAC code |
| 1. | < 5 crores | 4 |
| 2. | Exceeding 5 crores bracket | 6 |
| 3. | Supply of Chemicals | 8 |
Important guidelines:
- These HSN codes must be mentioned in each tax invoice that taxpayers submit under GST.
- It is necessary to submit an 8-digit HSN code in the export and import trade case under GST.
Why is it mandatory to mention the HSN code under GST?
The purpose of the HSN code is to classify goods in a logical and systematic manner. Therefore, after using the HSN code, there is no need to upload the picture of the description of goods. As a result, a lot of time gets to save, and the filing of GST return becomes automated.
A summary containing a Section code list has to be presented by the dealer in GSTR-1 if the total turnover goes above the slab. This list is the compilation of the list of all HSN codes necessary for GST enrollment. You can scroll through the category of the product and choose its section.
Know about SAC or Services Accounting code
SAC stands for Servicing Accounting code. It is used to classify services just as HSN classifies goods. A point to remember here is all services start with code 99. This is the sole difference that separates a SAC code from HSN.
For example, let’s take SAC code 99.82.13. Here, digit 99 depicts service in general; the 82 digits identify the service as legal service, and digit 13 classifies it as legal documentation.
What is the best way to find HSN & SAC codes in the HSN list?
With the use of the HSN calculator, it is effortless to find the code for both HSN & SAC for goods and services, respectively.
What do you mean by UQC?
UQC stands for Unique quantity order. It is used to calculate the quantity under the GST system. The measuring units in which the quantity is explained mainly include grams, kilometers, buckles, bags, tons, etc.
Explanation of UQC in GST
UQC is used to measure quantity under GST on its official portal. Thus, it is evident the user must have their GST software in line with the UQC code requirement to carry an uninterrupted return filling process. In addition, it also prevents any confusion between the taxpayers and the vendors in terms of using which metrics for a particular quantity.
Thus, it becomes easy for consumers to compare purchases. According to the GST Act under section 31, GST invoices must include the quantity and UQC code.
Also, it is better to calculate the HSN code of the product using HSN and GST calculator to avoid making any mistakes while filing a GST return. There are also multiple software that automatically populates HSN code in all the invoices and return. So, try our HSN and GST Calculator today and let the filling process get simplified for you.
