1. What is Harmonized System Nomenclature (HSN)?
HSN code number is widely used in many countries for the classification of goods for taxation purpose, claiming benefits, etc. HSN for each commodity is accepted by most countries and remains the same for most goods. In some countries, it may vary slightly based on the nature of classification of goods.
2. How is HSN relevant to GST?
In India, when implementing GST, all goods are to be classified on the basis of HSN number. Currently, HSN number is primarily used for classifying goods to compute Value Added Tax (VAT) in India. The same HSN is to be adopted for classifying Goods and Services Tax (GST). Hence, when preparing tax invoice for GST, you will be required to mention HSN number on the GST invoice.
3. What is the format of HSN code?
HSN code can be 2-digit, 4-digit, 6-digit or 8-digit. About 21 groups of HSN codes are classified. These 21 sections of HSN codes are sub-classified into 99 chapters of HSN code. Each chapter can be named as 2-digit HSN number. Each 2-digit HSN number is further classified into 4-digit HSN code. Based on such 4-digit HSN codes, the sub-classification is done as 6-digit HSN code.
As per Harmonized System of Nomenclature accepted worldwide, 6-digit HSN code is accepted. However, in most countries, additional 2-digit HSN code is added in the last part of such HSN code number to sub-classify a 6-digit HSN code number.
4. How are different formats of HSN code number used?
HSN code numbers are primarily used for taxation purpose, especially for Import and Export worldwide. A 6-digit HSN code number is accepted for Export and Import calculation of duties and levies worldwide. In India, 8-digit HSN codes are used for the computation of Tax for Import and Export.
5. How will the goods and services be classified under GST regime?
HSN code shall be used for classifying goods under GST regime. Taxpayers whose turnover is between Rs. 1.5 crores and Rs. 5 crores shall use 2-digit code and the taxpayers whose turnover is Rs. 5 crores and above shall use 4-digit code. Taxpayers with turnover below Rs. 1.5 crores are not required to mention HSN code in their GST invoices. Services shall be defined as per the Services Accounting Code (SAC).
6. What is Services Accounting Code?
The Services Accounting Codes (SAC) have not been declared in the Model GST Law but they will remain the same as current codes used for Service Tax.