In the earlier regime of Indirect taxes, especially VAT there were challenges in identifying the right product code, which further leads to mismatches & then demand, recoveries from the department.
This problem to a larger extent has been solved under GST through an introduction of HSN Codes in the case of Products, which earlier was used in Customs & Excise only. Whereas Services will be classified under Service Accounting Code.
7 items to must know in understanding HSN Commodity code in GST are here:
1. Order’s Classification
The order in which “Chapters” are defined under “list of 21 Sections” of HSN code finder is usually listed based in order of complexities or degree of manufacture.
2. HSN Decoding
The HSN Commodity Codes consists of 8 digits in India which are interpreted in 4 blocks like
- First 2 digits indicate 99-Chapters.
- Second 2 indicate “1244-Headings”.
- Third 2 digits indicate “5224-Sub Headings”
- last 2 digits indicate “Sub Sub Headings”.
3. HSN Future Use
Chapter No. 77 indicates for future use while (Chapters 72 to 83) covers base metals and articles.
4. HSN National Use
Chapter No. 98 & 99 are for National use.
5. HSN Commodity Codes Categorization
Goods in HSN Commodity Codes are “Categorized” in major 2 categories:
- Agriculture & fixed with the land.
- Man Made commodity.
6. Goods Classification
The “Classification” of goods is possible with the help of HSN Directory, which is based on close analysis of Sections, Chapters, Headings & Sub Headings.
7. HSN Code based on Turnover
Under GST turnover of the taxpayer will play a crucial part in determining HSN Code. The broader rules are as follows:
- Taxpayers Turnover of < 1.5 crores, not required to mention HSN Code in Invoice.
- Taxpayers Turnover < 5 crores but > 1.5 crores, required to mention 2 digit HSN Code in Invoice.
- Taxpayers Turnover > 5 crores, required to mention 4 digits HSN code in the invoice.
In the 1st year of GST the turnover will be taken on estimation (self-declaration basis) & then in the next year & onwards previous year’s turnover will be considered for HSN selection.
Mentioning HSN Commodity Codes in the invoice will be really useful as taxpayers are not required to mention a description of goods & services again in returns. Minimizing duplication. Therefore under GST invoices will capture HSN Commodity Codes based on Turnover.
I hope this article clarifies your understanding about the HSN code for GST. If you have any suggestion then feel free to ask here or email me at firstname.lastname@example.org