HSN Full Form

HSN stands for Harmonized System of Nomenclature. It is a standardised system for commodity description and coding, also known as the Harmonized System (HS) of tariff nomenclature. The World Customs Organization (WCO) developed it as a multipurpose international product nomenclature to classify goods from all over the world in a systematic and logical manner. The WCO is in charge of keeping this code up to date. "The International Convention on the Harmonized Commodity Description and Coding System" is known to govern the HSN.

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The HS standardises customs and trade procedures, and non-documentary trade data interchange related to these procedures helps to reduce international trade costs. Governments and the private sector also use it for internal taxes, trade policies, monitoring of controlled goods, freight tariffs, transport statistics, price monitoring, quota controls, economic research, and analysis. As a result, the HS is a global language and code for goods, as well as a critical tool for international trade.

The HSN is made up of approximately 5000 commodity groups, each of which is identified by a six-digit code and is organised in a legal and logical structure that adheres to specific rules to achieve uniform classification. This system is used by over 200 countries as a foundation for customer relations and the collection of international trade statistics, as well as to classify goods for taxation purposes, claiming benefits, and other purposes. The HS classification system is used to classify more than 98 percent of all merchandise in international trade.

In India, Goods and Service Tax (GST) is levied on goods based on their HSN number because goods are classified based on their HSN number, and Goods and Service Tax (GST) is calculated accordingly.

Understanding the Digits of HSN Code

We have already discussed HSN full form in GST, let’s understand the digits in the HSN abbreviation. The HSN structure is divided into 99 Chapters of HSN code, which are divided into 21 sections. The chapters are further subdivided into approximately 1,244 headings, which in turn are subdivided into 5,224 subheadings. A two-digit HSN number can be assigned to each chapter. This two-digit HSN number is further broken down into a four-digit HSN code. The sub-classification is done as a 6 digit HSN code based on these 4 digit HSN codes.

Why is HSN Important?

HSN's main goal is to categorise goods from all over the world in a systematic and logical manner. This results in a more consistent classification of goods and facilitates international trade.

HSN Worldwide

More than 200 countries and economies use the HSN system for a variety of reasons, including a uniform classification base for customs tariffs.

Statistical Compilation of International Trade

The HSN is used to classify over 98 percent of all merchandise in international trade.

Most countries accept the Harmonized System of Nomenclature number for each commodity. For almost all goods, the HSN number remains the same. However, the HSN number is known to be used in some countries varies little depending on the nature of the goods classified.

HSN in India

Since the year 1971, India has been a member of the World Customs Organization (WCO). Initially, it used 6-digit HSN codes to classify commodities for Customs and Excise. Customs and Central Excise later added two more digits to the codes to make them more precise, resulting in an 8-digit classification.

Who Needs It?

HSN codes have long been used by manufacturers, importers, and exporters. Even before the GST regime, manufacturers were providing these codes. These codes have been provided by importers and exporters in their import and export documents. Traders would primarily use HSN codes found on invoices issued by manufacturers or importer suppliers. Dealers with a turnover of less than Rs 1.5 crore are exempt from using HSN codes for their commodities. Commodities with a value of Rs 1.5 crore to Rs 5 crore are assigned two-digit HSN codes by businesses with a turnover of Rs 1.5 crore to Rs 5 crore.

What is the SAC HSN Code?

Services Accounting is abbreviated as SAC. The Central Board of Indirect Taxes and Customs (CBIC) issues this to classify each service under GST. Each service has its own SAC. These SAC codes can be used in invoices you create for the services you provided. Under the GST regime, HSN and SAC codes are used to classify goods and services.

Structure of HSN Code

So, now that we've grasped the fundamental concept of HSN, let's take a look at its structure. The structure of the HSN code is shown below.

Indian manufacturers must adhere to the HSN's three-tiered structure.

• HSN is not required for taxpayers with an annual turnover of fewer than 1.5 crores.

• Taxpayers with an annual turnover of more than 1.5 crores but less than 5 crores will be required to use a two-digit HSN code.

• Businesses with an annual turnover of more than 5 crores will be required to use a four-digit HSN code.

• Those who deal with import and export must adhere to an 8-digit HSN code.