The Goods and Services Tax (GST) system, introduced in India in July 2017, aimed to streamline the country’s indirect tax structure. Under the GST regime, businesses are required to classify goods and services appropriately to determine the applicable tax rates. This is where the HSN code plays a crucial role. The full form of HSN code is Harmonised System of Nomenclature and it is a globally recognised system for classifying goods, and it has been adopted in the Indian GST system to facilitate uniformity and clarity in tax administration. Let’s understand what HSN code is and delve into the significance, structure and implementation of the HSN code in the GST framework.
HSN Code Meaning
HSN code is an internationally accepted system for categorising goods in a structured and systematic manner. Developed by the World Customs Organization (WCO), it is used for customs tariffs, trade statistics and various other purposes globally. The HSN code is a numeric representation of goods, with each code representing a specific category or product. In simpler terms, all the goods that are of the same type and category will be represented by a common code known as the HSN code.
In the context of the GST regime, the HSN code serves as a basis for determining the tax liability of goods. A particular GST tax rate is assigned to each HSN code. It helps in the proper identification and classification of products, making it easier for businesses and tax authorities to understand the nature of the goods and apply the correct tax rate.
How does HSN code work?
The HSN code uses a numerical system. The first two digits indicate the chapter, categorising broad groups of goods; the next two specify the heading, detailing types within each chapter; subsequent digits provide specific product classification.
Structure of HSN Code in India
The HSN code follows a systematic structure that enables easy identification and classification of goods. The code comprises six–eight digits, grouped as follows:
First Two Digits: The first two digits represent the HSN chapter.
Next Two Digits: The next two digits signify the HSN heading.
Subsequent Two Digits: The subsequent two digits denote the HSN sub-heading.
Last Two Digits: The last two digits signify the tariff items.
The level of detail in the classification increases with each additional digit. The more digits present, the more specific the product classification becomes. This hierarchical structure aids in determining the applicable GST rate accurately. You can easily find the HSN code relevant to your product from the HSN code list. You can also use the HSN code finder to help identify the correct HSN code for your goods and services.
HSN Worldwide
HSN is a globally recognized classification system used by over 200 countries and economies to streamline trade and taxation. With over 98% of global merchandise classified under the HSN, it plays a crucial role in facilitating seamless international trade.
Global adoption: HSN is used by more than 200 countries to standardize product classification.
Uniform classification: Ensures consistency in naming and coding goods across international markets.
Customs and tariffs: Forms the basis for customs tariffs, simplifying import and export procedures.
Trade statistics: Helps governments and organizations track international trade data efficiently.
Code variations: While the core structure remains the same, some countries modify HSN codes slightly based on the nature of goods.
HSN Code List for GST India
Section
Chapter
Commodities
HSN Code
GST Rates (%)
I
01-05
Live animals; animal products
0101-0511
0%, 5%, 12%, 18%
II
06-14
Vegetable products
0601-1404
0%, 5%, 12%, 18%
III
15
Animal or vegetable fats and oils
1501-1522
5%, 12%, 18%
IV
16-24
Prepared foodstuffs; beverages, spirits and vinegar; tobacco
1601-2403
0%, 5%, 12%, 18%, 28%
V
25-27
Mineral products
2501-2715
5%, 12%, 18%
VI
28-38
Products of the chemical or allied industries
2801-3825
0%, 5%, 12%, 18%, 28%
VII
39-40
Plastics and articles, rubber and articles
3901-4017
12%, 18%
VIII
41-43
Raw hides and skins, leather, fur skins and articles
4101-4304
5%, 12%, 18%
IX
44-46
Wood, articles of wood, cork and articles of cork, manufacturers of straw
4401-4601
12%, 18%
X
47-49
Paper, paperboard, pulp of wood or of other fibrous cellulosic material
4701-4923
12%, 18%
XI
50-63
Textiles and textile articles
5001-6310
0%, 5%, 12%, 18%
XII
64-67
Footwear, headgear, umbrellas, sun umbrellas, walking sticks, seat sticks, whips, riding crops and parts thereof
6401-6702
12%, 18%
XIII
68-70
Ceramic products, glass items, glassware, articles of stone, plaster, cement, asbestos, mica or similar materials;
6801-7020
12%, 18%
XIV
71
Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal, and articles thereof; imitation jewellery; coin
7101-7118
0%, 3%, 5%, 12%, 18%
XV
72-83
Base metals and articles of base metal
7201-8311
5%, 12%, 18%
XVI
84-85
Electrical equipment, Machinery and mechanical appliances, parts thereof
8401-8548
5%, 12%, 18%
XVII
86-89
Vehicles, aircraft, vessels and associated transport equipment
8601-8716
12%, 18%, 28%
XVIII
90-92
Clocks and watches, musical instruments, Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus,
9001-9209
12%, 18%
XIX
93
Arms and ammunition; parts and accessories thereof
9301-9306
12%
XX
94-96
Miscellaneous manufactured articles
9401-9617
12%, 18%
XXI
97
Works of art, collectors’ pieces and antiques
9701-9706
12%
How to add HSN code in the GST portal?
You can add HSN code in the GST portal by following these steps:
Step 1: Visit the official GST portal and log in using your credentials.
Step 2: Navigate to ‘Services’ and click on ‘Registration.’ Then select ‘Amendment of Registration Non-core fields.’
Step 3: Click on ‘Goods and Services’ and select ‘Goods.’
Step 4: Enter the item name or HSN code to find the relevant HSN chapter.
Step 5: Click on ‘Save and Continue’ and fill in all details.
Step 6: Complete the verification and submit the amendment through an Electronic Verification Code (EVC) or a Digital Signature Certificate (DCS).
How is HSN Code Different from SAC Code in GST?
Like goods, services have also been categorised for simpler reference. While the HSN code deals with the classification of goods, the Services Accounting Code (SAC) pertains to the classification of services under GST. The SAC system was introduced to ensure a uniform method of service classification for taxation purposes.
The structure of the SAC code is similar to that of the HSN code, with a series of numbers assigned to specific services. Like the HSN code, the SAC code is used in the invoicing process to indicate the type of service provided and to determine the applicable tax rate. This distinction between HSN and SAC codes ensures that both goods and services are adequately accounted for in the GST system.
GST Law Requirements Relating to HSN/SAC Code Disclosure in Invoice
Under the GST law, businesses are obligated to mention the HSN code for goods and the SAC code for services on invoices generated during transactions. The disclosure of these codes is crucial for the following reasons:
Tax Calculation: The HSN and SAC codes play a vital role in computing the GST liability of a business. It can be used to classify 5000+ goods. Correctly identifying the HSN/SAC code for goods and services ensures implementing the correct GST rate and making accurate tax calculations. You can use the HSN code list or HSN code finder for correct identification of the HSN code.
Input Tax Credit (ITC) Claims: Suppliers and recipients of goods and services rely on the HSN/SAC codes to claim Input Tax Credit. Accurate disclosure of these codes in the invoice ensures smooth ITC claims.
Government Compliance: GST authorities use the HSN/SAC codes for statistical and analytical purposes. Proper disclosure in invoices enables the government to monitor and analyse trade trends effectively.
Trade Facilitation: The HSN/SAC codes are used globally for international trade. Proper identification and classification facilitate seamless import and export procedures.
Earlier, the HSN code disclosure requirement in GSTR-1 followed a three-tiered system. However, with effect from 01 April 2021, the three-tier system was replaced with the following requirements:
As per the earlier three-tier system, HSN codes were exempted for businesses with a turnover of up to Rs. 1.50 crores. However, it can be seen from above that the requirement to mention the HSN code has become mandatory for all businesses irrespective of the turnover limits. However, registered persons having aggregate turnover of up to Rs. 5 crores in the previous financial year are not required to mention the HSN code in the tax invoice issued for supplies to unregistered persons.
Conclusion
The HSN code in GST serves as a standardised classification system for goods, promoting transparency and uniformity in tax administration. By adopting the globally recognised HSN code, India aligns its taxation structure with international trade practices. Additionally, the inclusion of SAC codes for services ensures that both goods and services are adequately accounted for under the GST regime.
Businesses must be diligent in correctly identifying and disclosing the HSN/SAC codes on invoices to comply with GST regulations. This not only ensures accurate tax calculation but also enhances transparency in trade practices. As the GST system continues to evolve, a robust understanding of HSN and SAC codes will remain crucial for businesses to navigate the complexities of the tax framework efficiently. For more such insightful information, check out TATA Capital blogs.
What is the difference between an HSN code and a SAC code?
HSN stands for Harmonized System of Nomenclature, while SAC stands for Services Accounting Code. The key difference is that HSN codes cover goods and services, whereas SAC codes only specify services.
Who needs an HSN code under GST?
Under GST in India, businesses use HSN codes based on turnover: below Rs. 1.5 crores are exempt, Rs. 1.5-5 crores need 2-digit codes, and above Rs. 5 crores need 4-digit codes. Importers and exporters are required to use 8-digit HSN codes.
Where should HSN codes be used?
HSN codes are essential for GST compliance and must be included on invoices, Bills of Supply, and in the GSTR-1 return. This ensures proper classification of goods and services for taxation purposes.
Is an HSN code 4 digits or 8 digits?
HSN codes are typically 6 digits, but in India, they can be 8 digits. The first two digits represent the chapter, the next two are the heading, the following two are the sub-heading, and the last two are the tariff item.
How do I find an HSN code?
To find the HSN code, visit the official GST portal. Go to the services section, where you can search by entering the HSN code or by providing a product description to identify the relevant code accurately.
What is the full form of HSN?
HSN stands for Harmonized System of Nomenclature. It is an internationally accepted system for classifying goods in trade.
Who is eligible for HSN code in GST?
All businesses registered under GST must use HSN codes, except small taxpayers with an annual turnover of less than Rs. 1.5 crore.
Is the HSN code mandatory for GST?
Yes, businesses with an annual turnover above Rs. 1.5 crore must mention HSN codes on their GST invoices for proper tax classification.
What is HS and HSN code?
HS (Harmonized System) Code is a globally standardized system for product classification, while HSN Code is its extension, specifically used in GST and international trade.
Are HSN codes the same across all countries?
The first six digits of HSN codes are universally standardized, but countries may add extra digits for specific classifications based on domestic requirements.
25 March 2025
8 mins read
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