written by | May 24, 2022

What is HS Code? An Overview

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Table of Content


Harmonised System Codes are extensively utilised throughout the shipping process for commodities throughout sector categorisations. The Harmonised System is a quantitative system of identifying traded goods that is standardised. Customs officials worldwide use it to know the product when collecting customs duties and compiling statistics. The World Customs Organisation manages the HS, which is updated every 5 years. It is the basis for the exports and imports categorisations used by many countries in trade agreements.

The HS allocates six-digit designations to different classes and commodities. Countries can add lengthier codes to the first six numbers to further classify themselves.

Did You Know?

A Mumbai-based chemical distributor wanted HSN codes to validate tax information and pay the necessary amounts in compliance with local legislation.

Harmonised System Codes

HS codes, which are approved by most countries worldwide, identify codes assigned to items so that their usage is done in global trade. The WCO looks over the HS codes, which are worldwide acknowledged to be used by customs officials and businesses so as to recognise those goods.

HS Codes Include the Following Characteristics

  • 1. A code of six digits is used to categorise the commodities
  • 2. Clearly defined rules for categorising the goods
  • 3. Serve as a global standard for the classification of commodities.
  • 4. Includes 98% of international commerce items and also above five thousand items.

Why Do You Require HS Codes?

When doing trade, the relevant HS code of the items will be important and necessary for some papers, including commercial and related to law.

Uses include contracts of sales and purchase, bills of lading, credit letters, and certificates of origin. When we are applying for trade business, the above-mentioned documents prove to be very useful.

Customs officials also use HS codes to apply duties and taxes on commodities and track shipping, that is, importing and exporting.

Also Read: List Of Goods Exempted Under GST in India with HSN Code

HS Standardised Guidelines

The World Customs Organisation maintains a detailed system for the categorisation of HS codes. The items will be organised into various things with every other level rising specificity.

The book includes 21 sections which are further divided into 99 chapters which, when classified in headings and subheadings, sum up to 1244 and 5224, respectively.

An HS Code's Anatomy

  • The initial two digits are specified as Chapter
  • Second and third digits: Heading
  • Last two digits: Subheading
  • Sorting your items

You can easily identify the HS code of your items using the WCO Harmonised System webpage and the categorisation method used.

As an example, consider the given HS code which we are finding out for roasted caffeinated coffee.

Level

Name

Code

HS Code

SECTION

Vegetable Product

Section II

N/A

CHAPTER

Coffee, tea, and spices

Chapter 9

09

HEADING

Coffee, maybe or not roasted or decaffeinated; coffee substitutes containing coffee in any proportion

 

0901

SUBHEADING

Coffee roasted: Not decaffeinated

 

0901.21

'Roasted Caffeinated Coffee' would have been the HS classification, which to be more specific, is 0901.21.

Some General Instructions

These special mentioned instructions will help in categorising the products and assigning the closest or suitable HS code.

We have six generalised rules that must be followed when classifying their items.

  • GR1
  • GR2
  • GR3
  • GR4
  • GR5
  • GR6

Practical Application of HS Codes

The codes of products are longer than the six codes of HS because various countries will utilise different HS code extensions to transport vital details about those commodities.

Many immigration administrations will use the HS code for the first six digits of the goods classified, with any subsequent numbers as per their guidelines.

An Example of How HS Codes Are Used in Global Trade

The US categorisation, namely Schedule B, is different and includes ten digits where the initial six are HS codes, and the last four are identified by the Census Bureau of the US. 

Until you can effectively export your items, the US Commerce Department suggests procuring the HS code, then the code related to Schedule B of the US, and lastly, export the final country's item number.

Originating Items And the Non-Originating

HS codes play a vital role in a variety of international commerce difficulties.

One significant problem is determining whether a product is originating or not, impacting the tariff applied to it.

If one wishes to obtain the benefits of a free trade agreement, the items might be required to satisfy FTA's origin rules.

The origin of goods can be identified by a change in the code from imported raw materials to final exporting items. The materials which one uses in a product which are getting exported can be non-originating only if it satisfies that the finished good is classed under a distinct resource code.

This can be expanded to a variety of levels of HS codes, which may be chapters divided into headings and comment threads too.

CC (Chapter Change)

An example of this is changing the chapter. Assume you are importing a smartwatch from a nation outside the FTA which definitely is a non-originating good. So if your valuation doesn't really change the initial HS Chapter in the products HS Codes, your item may not even be duty-free.

However, you may import products other than the FTA, such as aluminium, and utilise them to manufacture a watch that resembles the categorisation of  HS Chapters for watches.

Due to the difference in a chapter, your items can be categorised as originating, notwithstanding the usage of non-originating ones. Therefore, they will be suitable for preferential tariffs.

Crucial Pointers Regarding HS Codes and Origination Status

To achieve these standards, you should be well aware of the HS codes of the items you are exporting and the inputs utilised in its production and the place they were initiated in.

The most suitable way is to examine the guidelines of the national customs office and the duties authority of the final point for the exporting of goods to get the perfect codes for your goods and originating status.

HS codes- The Significance in Global Trade

The HS code's acceptability and usefulness as a worldwide monetary way and these harmonised system codes for products have made it a vital instrument for trade globally, implemented into several customs clearing systems all over the globe.

Regulations for Customs- Writing the suitable HS code and what it means is critical. Using the erroneous code can lead us to be deemed by customs as misleading, cheating or unfair compliance— and all of them have their own set of consequences.

In some cases, writing an accurate HS code might prove difficult since the understanding of these codes varies between nations and customs administrations.

Improper use of the HS code might lead to an incorrect duty levied by customs, which in turn enormously raises the money related to imports.

Statistics about trade- The consistent codes can also track commerce statistics. These codes are used by firms under private sector firms and international corporations, and the government.

Regulated commodities, taxes, trade deals, transport data, cargo tariffs, a collection of financial statements, quota restrictions, price control, transportation statistics, and macroeconomic search analysis are all used to monitor, update, and optimise them.

Transferring commercial data- HS codes are majorly applied in electronic messaging, which might be at United Nations Electronic Data Interchange for Administration, Transport and Commerce standards.

This has facilitated the system's adoption as a global mark for the description of a product throughout several platforms.

Other Product Specifications

Other product codes may be required while trading depending on the nature of your items and business.

The GS1 Standards database is the one which includes the very important one, Global Trade Item Number. It might be changed into different language barcodes and used to readily identify things in trade.

When we use 'Google for Retail', it now suggests GTIN product IDs for e-commerce dealers.

Also Read: SAC (Services Accounting Codes) List & GST Rates on Services

The HS Codes were Modified in 2022

Every five years; the World Customs Organisation modifies its HS code system. The goal is to respond to the changing needs of the global trading environment.

The WCO published the 7th edition of the HS in January 2022, including minor changes to the HS code rules.

The rate of adoption varies per country. However, significant trading blocs such as the EU changed their systems on January 1, 2022.

Check that your items are appropriately categorised and that they fit the standards of the customs authorities along your trade route, as well as when utilising the codes within your necessary commercial and legal papers, before shipping.

Conclusion

As a result, the HS code is a standardised technique for classifying products shipped globally. Because HS and HTS codes are the world's business languages, you must become acquainted with them if you're an exporter or importer. Many nations further add characters to the HS code to differentiate products into specific categories. These additional numbers are often unique to each country.

While locating the exact HS Code for your item may appear to be a daunting endeavour, you may take advantage of specific links and information given in this section. And there's no getting away from it. You should grasp these codes because it is your legal obligation.

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FAQs

Q: Are HS codes always sequentially numbered?

Ans:

In general, headings and subheadings are numbered sequentially. However, this premise is broken because, beginning in 1996, some HS code numbers vanished as a result of the renumbering of HS subheadings when their content changed.

Q: Can the Harmonised System Committee's decision-making process be accelerated?

Ans:

Something that the Harmonised System Committee (HSC) has been wrestling with. The HSC has taken steps to speed up the mechanism for re-examining questions, resulting in a faster review of rulings that one or more countries cannot accept.

Q: Are the HS Codes for all countries different?

Ans:

Many nations further add characters to the HS code to differentiate products into specific categories. These additional numbers are often unique to each country.

Q: What is a product's tariff categorisation in the system of HS Codes?

Ans:

The World Customs Agency, being an intergovernmental organisation, does not give information about tariff classification of commodities to the private sector or private individuals but only to WCO Member governments.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.