All goods and services transacted in India are categorized using the HSN code system or the SAC code system under GST. Goods are categorized using the HSN Code, whereas services are classed using the SAC Code. GST rates have been set in five slabs based on the HSN or SAC code, namely NIL, 5%, 12%, 18%, and 28%.
What is HSN Code?
The acronym HSN stands for “Harmonized System of Nomenclature.” This approach has been implemented all around the world for the systematic classification of items. The HSN code is a 6-digit universal number that categorizes over 5000 items and is accepted globally. The World Customs Organization (WCO) created it, and it went into operation in 1988.
How does HSN Code work?
It comprises around 5,000 commodity categories, each of which is designated by a six-digit code and is organized in a legal and logical framework. To achieve uniform classification, it is supported by well-defined norms.
Why is HSN crucial?
HSN’s principal goal is to categorize goods from all over the world in a systematic and logical manner. This results in a more consistent categorization of items and facilitates international trade.
HSN Worldwide
More than 200 countries and economies use the HSN system for a variety of reasons, including:
- A classification that is consistent
- Their Customs tariffs are based on this.
- A statistical compilation of international commerce
The HSN is used to classify about 98 percent of all items in international trade.
Most countries accept the Harmonized System of Nomenclature number for each commodity. For practically all commodities, the HSN number remains the same. However, the HSN number used in various nations varies little depending on the type of commodities categorized.
HSN in India
Since 1971, India has been a member of the World Customs Organization (WCO). Initially, it used 6-digit HSN codes to classify commodities for Customs and Excise. Customs and Central Excise later added two extra digits to the numbers to make them more exact, resulting in an 8-digit categorization.
Understanding the HSN Code
The HSN structure consists of 21 divisions, 99 Chapters, approximately 1,244 headings, and 5,224 subheadings.
- Each section is further subdivided into Chapters. Headings are used to splitting each Chapter. Each Heading is further subdivided into Sub Headings.
- Section and Chapter titles represent broad groups of items, whereas headers and subheadings identify specific products.
As an example:
62.13.90 Handkerchiefs made of textile 62.13.90
- The first two digits (62) reflect the chapter number for non-knitted or crocheted articles of clothing and clothing accessories.
- The next two digits (13) show the handkerchief heading number.
- Finally, the last two digits (90) represent the product code for various textile-based handkerchiefs.
India has two more numbers for a more detailed categorization.
If the handkerchiefs are made of synthetic fiber, the HSN code is 62.13.90.10.
If the handkerchiefs are made of silk or silk waste, the HSN code is 62.13.90.90.
Services Accounting Code (SAC) in GST
Services, like things, are systematically categorized for recognition, measurement, and taxes. Services Accounting Codes, or SACs, are codes for services.
The Service Tax Department of India developed the SAC Code, or Services Accounting Code, as a classification system for services. The GST rates for services are set using the SAC code and are divided into five slabs: 0%, 5%, 12%, 18%, and 28%. If a service is not exempt from GST or the GST rates are not specified, the default GST rate for services of 18% will apply.
As an example:
998213 provides legal documentation and certification services for patents, copyrights, and other intellectual property rights.
- The first two numbers, 99, are the same for all services.
- The next two digits (82), in this example, denote the primary nature of service, which is legal services.
- The final two digits (13) identify the specific nature of the service, such as legal documents for patents, etc.
Why is HSN crucial under GST?
The goal of HSN codes is to make GST more structured and universally acknowledged.
HSN codes will eliminate the need to supply a full product description. Because GST returns are computerized, this will save time and make filing easier.
If a dealer or service provider’s turnover falls within the above slabs, he or she must supply an HSN/SAC-by-SAC summary of sales in his or her GSTR-1.
| Sections | HSN Code List for |
| Section 1 | Live Animals, Animal Products |
| Section 2 | Vegetable Products |
| Section 3 | Animal or Vegetable Fats and Oils and their cleavage products, prepared edible fats, Animal or Vegetable waxes |
| Section 4 | Prepared Foodstuffs, Beverages, Spirits and Vinegar, Tobacco and Manufactured Tobacco Substitutes |
| Section 5 | Mineral Products |
| Section 6 | Product of the chemicals or allied Industries |
| Section 7 | Plastics and articles thereof, Rubber and articles thereof |
| Section 8 | Raw hides and skins, Leather, Furskins and articles thereof, saddlery and harness, travel goods, handbags and similar containers, articles of animal gut ( other than silk-worm gut ) |
| Section 9 | Wood and articles of wood, Wood charcoal, Cork and articles of cork, Manufacturers of straw, of Esparto or of other Plaiting Materials, Basketwork and Wickerwork |
| Section 10 | Pulp of wood or of other Fibrous Cellulosic Material, Recovered ( Waste and scrap ) paper or paperboard, paper and paperboard and articles thereof |
| Section 11 | Textile and textile articles |
| Section 12 | Footwear, Headgear, Umbrellas, Sun Umbrellas, Walking-sticks, seat-sticks, whips, riding-crops, and parts thereof, Prepared feathers and articles made therewith, Artificial flowers, Articles of human hair |
| Section 13 | Articles of stone, plaster, cement, asbestos, mica, or similar materials, ceramic products, glass and glassware |
| Section 14 | Natural or cultured pearls, precious or semi-precious stones, precious metals, Metal clad with precious metal, and articles thereof, Imitation Jewellery, Coins |
| Section 15 | Base Metals and Articles of Base Metal |
| Section 16 | Machinery and mechanical appliances, electrical equipment, parts thereof, sound recorders and reproducers, television image and such recorders and reproducers, and Parts and Accessories of such article |
| Section 17 | Vehicles, Aircraft, Vessels and Associated Transport Equipment |
| Section 18 | Optical, Photographic, Cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, clocks and watches, musical instruments, parts and accessories thereof |
| Section 19 | Arms and ammunition, parts and accessories thereof |
| Section 20 | Miscellaneous Manufactured Articles |
| Section 21 | Works of art, Collectors’ Pieces and antiques |
