It was created by the World Customs Organization (WCO) and is regarded as the international norm for designating commodities. This method has been established to allow for commodities' global, systematic classification. There are 181 members of the WCO, and 75% of them are developing nations that oversee more than 98% of global trade. A 6-digit universal identifier, the HSN code, categorizes more than 5000 products, is used worldwide. The World Customs Organization first implemented it in 1988. Since 1986, India has divided commodities from Central Excise and Customs using HSN codes.
Did you know? The Harmonized System is governed by "The International Convention on the Harmonized Commodity Description and Coding System"
What is the purpose of HSN Code?
While the systematic classification of commodities is the HSN code's primary function, it can also be used to collect data and find solutions to issues that would be challenging. HSN Code is used to make the system of global trade more effective. It is used in more than 200 countries throughout the world.
It is a set of six-digit codes that can be used to standardize the classification and coding of commodities. HSN Codes simplify customs clearance and tariff computations in international trade. In India, importers and exporters primarily use the HSN code to categorize their products logically. Such a framework aids in the local custom's accurate and discrepancy-free imposition of taxes and duties. Furthermore, product names may vary between nations. By using HSN codes, communication obstacles can be ended.
Also Read: What Is HSN Code, and Why Is it Important?
Understanding HSN Code Structure
There are 21 sections in the HSN Code system, each representing a different category of commodities. There are 99 chapters, each of which is divided into a subset of products. The chapters are further divided into 1,244 categories and then 5,224 subheadings to focus on a particular category of items.
The HSN Code's Bifurcation Headings, subheadings, and tariff items further split the chapters. The first two digits of an HSN Code's eight-digit structure determine the chapter, followed by headings at the four-digit level, subheadings at the six-digit level, and tariff items at the eight-digit level. Eight-digit HSN codes have a distinct meaning. Using HSN codes, business organisations can classify their products for purchase or resale. This classification may be used for inventory management, product descriptions, or price considerations. Governments and other organisations utilise HSN codes to collect taxes and customs duties on imported items.
How to Get the HSN Codes for a Product?
To locate an HSN code for a product, you must adhere to specific steps.
You must first choose a chapter.
The next step is to choose a section of the chapter.
After selecting the section, you need to select the subheading.
The last option given is that of the Product.
For e.g, If you are selling sports shoes your HSN Code can be derived as follows-
Chapter 64-
Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials
- Section 04 Sports footwear; tennis shoes basketball shoes gym shoes training shoes and the like:
Subheading 11
So, the HSN Code for Sports Shoes is 640411
HSN Code for Plywood
Plywood is categorized under Section 09: Section 09 is further divided into Chapters: Section 09 constitutes wood and products made of wood, wood charcoal, cork and items made of cork, manufactured goods made of straw, esparto, or other plaiting materials, basket ware, and wickerwork
The HSN Code for Plywood is 44123190. This particular code includes Plywood, Veneered Panel and Laminated Wood
- The initial two digits (44) represent the chapter number which is Chapter 44 - Wood and Articles of wood; wood charcoal
- Next, two digits (12) represent the heading number which is plywood, veneered panels and similar laminated wood
- Next two digits (31) represent the product code which is other plywood, consisting solely of sheets of wood (other than bamboo), each ply not exceeding 6 mm thickness
- Last two digits (90) are for final or deeper classification that implies others
Also Read: GST Rate & HSN Code for Services - Chapter 99
Who Can Use HSN Code?
HSN codes have been utilized by manufacturers, importers, and exporters for a very long time. Even before the introduction of the GST, manufacturers were providing these codes. Importers and exporters have provided these codes in their import and export documents.
While the systematic classification of commodities is the HSN code's primary function, it can also be used to collect data and find solutions to issues that would be challenging to find otherwise. As a result, the system of global trade is more effective.
Why Is HSN Code Important?
The majority of the time, traders will use the HSN codes included in the invoices that manufacturers or importer suppliers send to them. Dealers with a communication budget of less than ₹ 1.5 crore are exempt from using HSN codes.
HSN Codes are important as they allow
Ease of Understanding
HSN Codes are used by most countries hence making comprehension and understanding easier for both importers and exporters. The right HSN codes can help standardise the procedure and get the two parties on the same page if two things have distinct meanings in various countries.
Suitable Taxation
If terminology is previously defined it is easier to set up an automation procedure for taxation. Due to their assistance in automating the GST taxing procedure, HSN codes have a significant advantage in India. HSN codes streamline and make the process transparent by removing all room for misunderstanding.
Classification and Recording Data
Analysing data and analytics is essential for an import-export business to determine whether a plan is successful or unsuccessful. It turns out to be surprisingly simple to capture and sort information in an exact manner when everything is arranged thus skilfully.
Also Read: GST Rate & HSN Code for Toys, games and sports requisites
Benefits of HSN Code
Every commodity has an HSN number, and the number is consistent across practically all countries. Since the objects' nature solely determines HSN numbers, they can differ slightly between nations
- It gives Customs and Central Excise a standard, global framework for categorising items.
- It offers a unified system of international taxation.
- It makes doing business globally easier.
- Additionally, it is utilised to file returns, invoices, etc.
The HSN system has significant consequences for GST, in addition to helping customs officials. It helps in making GST standardized and widely accepted. When using HSN codes, it is unnecessary to publish a thorough description for each good covered by the GST. This enables the automation of GST returns, saving the tax office time and money.
Conclusion
Every product has a separate HSN Code, and this information is used for trading goods work over. HSN Codes make trades easier and more organized. Once we derive the 4-digit code, we need to further categorize products into headings and subheadings. Using the HSN code guidelines, an 8-digit code is assigned to any item used for trade or commercial purposes.
In India, HSN Code helps in deciding GST slabs for goods. HSN Codes are also applicable for services.
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