What is HSN Code?
The Central Board of Indirect Taxes and Customs (CBIC) has made it mandatory to mention the 8 digit HSN code in tax invoices for 49 chemical-based products while issuing GST invoice. The move is expected to reduce tax evasion. HSN or Harmonized System of Nomenclature code is a system for classification of goods across the world. This classification is used to help with taxation i.e. helps identify which tax rate is applicable to a product.
What is HSN code?
HSN is Harmonised System of Nomenclature. The HS code is called the HSN code in India. HS code is a six-digit identification code. The first two digits in the code denote the HS chapter, the next two digits are the HS heading and the last two digits are the HS subheading. The HS is “Harmonised System”. It was developed by the World Customs Organization. It is a multipurpose International product nomenclature. The code is called the universal economic language for goods. The code comprises of more than 5000 commodity groups.
In India the code uses 8 digits.
The HSN code consists of 21 sections, 99 chapters, 1,244 headings and 5,224 subheadings. For instance, HSN of onion is 07031010. The ‘07’ denotes the chapter of “Edible Vegetables”, ‘03’ denotes headings in the chapter such as onions, garlic, shallots, leeks. The rest denote the subheading. Here the subheading is fresh or chilled.
The HSN code is mainly used for taxation purpose. It helps to identify the rate of tax applicable to a product in the country.
The codes are used by statistical Agencies, customs authorities and other government regulatory bodies to control the import and export of commodities. The code mainly finds its application in custom tariff, collection of internet access, collection of International Trade statistics, transport tariffs and Statistics, areas of custom control and procedures, monitoring of controlled goods such as narcotics, Chemical Weapons, endangered species, Ozone layer depleting substances and wildlife trade.
Why is the HSN code important?
Around 200 countries use the system for gathering international trade statistics, custom tariffs and to monitor goods and make trade policies. Therefore, the system helps to harmonized trade procedures and ultimately reduces costs in international trade.
Importance of HSN in GST
It makes GST systematic and globally accepted. By using HSN codes, there is no need to upload detailed descriptions of the goods. This helps in automation of GST returns. Thus, it helps to save money and time for the tax authorities.
Category: Economy & Banking Current Affairs