HSN Code: Meaning, Features and How They Benefit You

As a business owner in India, no matter the kind of business you own, you must have a deep understanding of the product classification under the Goods and Services Tax (GST) regime. This is where the HSN codes play a crucial role. The HSN code stands for Harmonised System of Nomenclature.

 

The HSN code is a universal language for product categorisation, which allows clear communication between business owners and customer authorities worldwide. In this guide, we discuss what HSN means and other important factors that you must know.

 

What is HSN code?

 

HSN Code is an acronym for Harmonised System of Nomenclature. It is a systematic way to classify the goods into different categories, and it was developed by the World Customers Organisation. The HSC Code is a 6-digit uniform code that more than 200 countries use. The main objective of this code is to provide a systematic way to classify the goods for taxation purposes.

 

Features and Benefits of HSC Codes

 

Now that you know what HSN code means, it would help to know its features and how it can benefit your business. These codes offer several unique features, which make them a powerful tool for facilitating international trade and domestic tax systems like the GST.

 

• Standardised universal code

  Every country that adheres to the HSN code list system uses the same set of codes for specific types of products, ensuring clear communications between businesses and customer officials around the world. This greatly helps minimise the confusion and risk of disputes or errors in trading transactions between two nations involved in the trade.

   

• Structured trade policies

  The HSN codes enable the collection and analysis of trade data easily and quickly. Governments all around the world can easily keep track of the latest trends in the import and export industry, create new and effective trade policies as well as create an ambient and conducive environment for growing business.

   

• Beneficial for businesses of all sizes

  Having a good understanding of the HSN codes can empower all kinds of businesses, irrespective of their size, to classify their products correctly, allowing them to determine the GST rates correctly and ensure that the transaction with the customs authorities is done smoothly.

   

  As an SME or a large corporation owner, you can use the HSN code to simplify the tax compliance process.

   

• Designed for GST in India

  Initially, the HSN code system in India consisted of 6 digits. However, it was later expanded into 8 digits to fit within the GST framework. As a business owner who pays taxes and files returns in India, it is mandatory for all to use the HSN codes for invoices.

   

• Useful for domestic purposes

  While the core structure of the HSN code is standard around the world, the countries have the flexibility to incorporate a few additional digits to suit the tax system in their country. In India, the businesses that have an annual turnover between Rs. 1.5 crore to Rs. 5 crore can use 2-digit HSN codes, and businesses that have a turnover of more than Rs. 5 crore can use 4-digit codes in returns and invoices.

   

  Working on the HSN codes

   

  The HSN codes follow a standardised hierarchical structure that offers an enhanced level of detail with every additional digit. The basic structure of HSN codes include:

   

• The first two digits in the code represent the broad category of the goods
• The subsequent two digital represent the product category
• The optional subsequent digits provide more specific information and identification of the product

 

As the number of digital in the HSN codes increases, the code identifies the products/goods, more specifically, allowing proper taxation rates under GST.

 

How to search the HSN codes?

 

You can easily search and know about the different HSN codes from the CBIC-GST i.e., the Central Board of Indirect Taxes and Customers portal. Searching the HSN codes is quite simple, you just have to follow the below steps:

 

• Step 1 – Visit the GST portal and find the section for ‘services’

   

• Step 2 – Click on the ‘user services’

   

• Step 3 – Under this section, you can find an option named ‘search HSN/SAC code’ click on it, and you will see a comprehensive list of HSN codes

   

• Step 4 – You can search for the HSN code that you are looking for specifically by either entering a keyword relating to the goods that you want or you can directly enter the HSC code if you know it already

   

• Step 5 – If you are not aware of the exact keyword or the code to search from the list, you can browse through different product categories provided on the portal and find the specific product you are looking for

 

 

 

Final Word

 

The HSN codes provide a standardised and efficient way to categorise products. This allows you to carry out international trade transactions smoothly, gather valuable trade data for better policy formulation, and collect taxes accurately. Additionally, since HSN codes are used widely in international trade, they help in harmonising customs procedures.

 

Udyog Plus, one of the leading NBFCs in India, recognises the unique needs of SME business owners and offers a wide range of business loan solutions to help them grow. If you are a small business owner, you can apply for an unsecured business loan with Udyog Plus and get loans of up to Rs. 2 lakhs without submitting any documents.

 

For loans more than Rs. 2 Lakh, you can get the desired funds at the most affordable interest rates, starting from 8% per annum. Also, you get flexible repayment options and favourable terms and conditions that make the repayment manageable.

 

You can visit the Udyog Plus website to learn more about the business loan offers and a range of other services available to SME business owners and get the best support you need to grow your business and take it to the next level. In short, Udyog Plus could be your most trusted aide in growing your business.