written by khatabook | November 14, 2022

Know More On Harmonized System of Nomenclature In Brief

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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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FAQs

Q: What is the limit for the HSN code?

Ans:

From January 1, 2004, HSN codes of up to 6 digits in invoices are required for taxpayers whose turnover in the prior fiscal year exceeded ₹ 5 crores.

Q: Is HSN Code Mandatory?

Ans:

The HSN Codes must be used for exports. The 8-digit HSN Code must be listed on the shipping bill for the export incentives to apply.

Q: How are HSN Codes used?

Ans:

HSN codes are used to make GST standardized and widely recognized. HSN codes will eliminate the requirement to supply a thorough product description. Since GST returns are computerized, this will save time and simplify filing. HSN Codes are used for classification and identification of goods for trading purposes, especially for import and export.

Q: Who created the HSN?

Ans:

The World Customs Organization created the HSN or HS (Harmonized Commodity Description and Coding System), an all-purpose worldwide product name (WCO).

Q: What occurs if you enter the incorrect HSN code?

Ans:

For buyers, incorrect HSN codes may be a problem. The GST rates for items vary when a supplier inputs the incorrect HSN Code. Due to the disparity in the reconciliation, the buyer will not be able to claim ITC after this. The suppliers themselves are also at risk from code errors.

Q: How does one generate their HSN Code?

Ans:

Instead of creating a new HSN code, you use the HSN codes directory to assign one to your products. The GST Act contains 21 sections that are grouped into over 99 chapters with 1244 headings and 5244 subheadings. If you are giving your product an HSN code, it must accurately reflect its specifications. The eight-digit code can be used to emphasise the regional components of the HSN code.

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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.