1. What is GST?
Goods and Services Tax (GST) is a comprehensive and unified value-added tax imposed on the majority of goods and services exchanged within a country. This taxation system replaces the previous complex structure of various central and state taxes, streamlining the process and aiming for a more efficient and transparent taxation framework. GST is essentially a consumption-based tax, meaning that end consumers bear the tax burden, but it is the responsibility of businesses and companies to collect and remit the tax to the government.
The implementation of GST marks a significant shift from the prior system, where different types of taxes such as excise duty, sales tax, service tax, surcharges, and cesses were levied at both the central and state levels. The consolidation of these taxes into a single GST has been undertaken with the overarching goal of fostering economic unity and simplifying the tax structure. The slogan “One Nation, One Tax” encapsulates the essence of this transformative tax reform.
Under GST, businesses are required to register and comply with a standardized set of rules and regulations, facilitating a more seamless and uniform tax collection process. The tax is applied at each stage of the supply chain, allowing for input tax credits to be claimed by businesses, thereby avoiding the cascading effect of taxes on taxes.
The GST framework encompasses not only the central taxes like excise duty and service tax but also integrates state-level taxes such as State VAT/sales tax, purchase tax, luxury tax, entertainment tax, and sin tax. This integration ensures a more coherent and harmonized tax system, reducing compliance burdens and promoting ease of doing business.
2. What are GST Rates
Goods and Services Tax (GST) in India has significantly reformed the taxation landscape, introducing uniformity in the taxation of various goods and services and eliminating the cascading effect of multiple taxes imposed by both the state and central governments. While GST is a single tax system, the diverse range of commodities and services has led to the classification of these items into different GST slabs, each with its own tax rate. As of now, there are five GST slabs, each with a specific tax rate:
1. NIL (0%): This slab implies that no tax is levied on the goods or services falling under this category. It includes essential items that are deemed necessary for daily life.
2. 5%: Goods and services falling under this slab are subject to a 5% tax rate. This slab is often applied to items that are considered essential but not placed under the NIL category.
3. 12%: Items and services in this slab attract a 12% tax rate. It typically includes goods and services that are neither essential nor luxurious but fall somewhere in between.
4. 18%: Goods and services falling under this slab are subject to an 18% tax rate. This slab encompasses a wide range of products and services, including those that are considered moderately luxurious.
5. 28%: The highest GST slab imposes a tax rate of 28% on goods and services deemed to be luxurious or non-essential. This includes high-end products and services.
The GST rates have not remained static; they have undergone changes based on discussions and decisions made in the GST Council meetings. As of now, there have been 34 GST Council meetings, during which adjustments have been made to the tax rates for various goods and services. Some items have been shifted from one slab to another, and there have been instances where tax rates have been reduced, such as the shift from 28% to 18%. Conversely, certain goods have seen their tax rates move from NIL to 5% or other applicable slabs.
3. What is an HSN code?
The HSN code, or Harmonized System of Nomenclature code, is a standardized international system developed by the World Customs Organisation (WCO) to facilitate the systematic classification of goods. The primary objective of the HSN code is to provide a common language for the classification of products and to simplify international trade by ensuring uniformity in the classification of goods across different countries.
The HSN code is a numerical code assigned to each traded product, and it is used to categorize goods in a systematic and logical manner. This classification is beneficial for customs authorities, traders, and other stakeholders involved in the import and export of goods. The HSN code is particularly useful in clearing up confusion related to the categorization of products and aids in the smooth flow of goods in both domestic and international trade.
With more than 20,000 goods traded globally using HSN codes, this system has become a crucial tool for standardizing the classification of goods on a global scale. Over 90% of world trade utilizes the revised HSN codes developed by the WCO. The adoption of HSN codes by countries, including India, enhances the efficiency of customs procedures and promotes consistency in the interpretation of traded goods.
In India, the HSN code is widely used in the context of the Goods and Services Tax (GST). It helps in the systematic classification of goods for taxation purposes, ensuring that the appropriate tax rates are applied to different categories of products. The use of HSN codes in the GST framework streamlines the tax process and promotes transparency in trade-related transactions.
4. Importance of GST HSN Code
The importance of GST HSN (Harmonized System of Nomenclature) codes in the context of the Goods and Services Tax (GST) in India is significant for several reasons:
The incorporation of GST HSN codes in the Indian taxation system brings about standardization, transparency, and efficiency in international trade, customs procedures, and GST compliance, ultimately contributing to a more seamless and globally integrated economic environment.
5. How does HSN code work?
The HSN (Harmonize d System of Nomenclature) code system is designed to classify goods in a systematic and structured manner, providing a common language for international trade. Here’s how the HSN code system works and the criteria for its adoption:
Criteria for Adoption: Businesses must adopt HSN codes based on their annual turnover. The different criteria are:
Structure of HSN Codes: The HSN code system organizes goods into the following categories:
Example of HSN Code Structure: As an example, consider an 8-digit HSN code: 1234.56.78.
Application in GST:
International Trade: HSN codes are crucial for international trade as they provide a standardized classification system recognized globally. The 8-digit HSN codes are particularly important for import and export transactions.
HSN Module: The HSN module classifies goods into various sections, chapters, headings, and subheadings, ensuring a comprehensive and organized system for categorizing a wide range of products. The HSN code system operates based on a hierarchical structure, with different levels of classification, and its adoption by businesses is determined by their annual turnover. The system is integral to facilitating accurate classification, promoting uniformity in international trade, and aiding in the effective implementation of taxation systems such as GST.
6. How to Choose and Calculate HSN Code for Your Product
i. Understand the Basics:
ii. Identify Your Product:
iii. Refer to HSN Code Lists:
iv. Consider Your Business Turnover:
v. Keep it Simple:
vi. Accuracy Matters:
Remember, the HSN code system is designed to bring uniformity and clarity to the classification of goods. Taking the time to correctly identify and apply the appropriate code for your product ensures smoother business operations and compliance with taxation regulations.
Example of HSN Code
Example: LED Television (HSN Code: 85 28 12 11)
In this example, the HSN code 85 28 12 11 would be associated with LED Televisions in international trade. This systematic classification allows for a standardized understanding of the product, facilitating trade and taxation processes. Businesses involved in the production, sale, or import/export of LED televisions would use this HSN code to ensure accurate and uniform classification in their transactions.
7. Chapter wise distribution of commodities using HSN code List
|Serial No / Chapter No’s
|Live Animals and poultry
|Animal Meat and edible offals
|Fish, fillets and other aquatic animals meat
|Honey, Eggs and Dairy Products
|Inedible animal products (unspecified)
|Flowers, Live trees and plants
|Tea, coffee, spices
|Cereals and Grains
|Milling Industry Products
|Medicinal Plants, seeds and fruits
|Lac, Gums, Resins, vegetable SAP and other extracts
|Vegetable products and materials (unspecified)
|Oils, Fats, Vegetable and Animal products
|Fish and aquatic vertebrates meat (Prepared/Preserved)
|Sugar, sugar confectionery and bubble gums
|Cocoa and Cocoa products
|Pastry, pizza, bread, waffles
|Fruits, Juices, Jams and Jellies
|Tea, coffee and other edible preparations
|Non-alcoholic beverages, Spirit and Vinegar
|Residual starch products, meals, and pellets
|Tobacco and tobacco products
|Salts and Marbles
|Mineral ores and concentrates
|Coal, Petroleum and other fossil fuels
|Gases and Inorganic Chemicals
|Blood and Pharma products
|Fertilizers and unspecified products
|Colouring and Tanning products
|Cosmetics and oils
|Soaps and waxes
|Glues and Enzymes
|Industrial explosives and fireworks
|Photographic and cinematographic goods
|Chemicals and clinical wastes
|Rubber and rubber products
|Skins and rawhides
|Leather products: Bags, wallets, and handbags
|Raw and artificial fur products
|Wood products and Wood charcoal
|Natural and Shuttlecock Cork
|Basketware, of esparto or of other plaiting materials; wickerwork and manufacturers of Straw
|Paper, Paperboard, Newsprint
|Printed Books, Newspapers and Postal goods
|Fine, woolor coarse animal hair; woven fabric andhorse hair yarn
|paper yarn and woven fabrics of paper yarn and Other vegetable textile fibres
|Man-made staple fibres
|Cables,ropes, felt and nonwovens,cordage, wadding; special yarns; twine and articles thereof
|Carpets and other textile floor coverings
|Fabrics of tufted textile, lace; tapestries,trimmings; embroidery
|Coated and laminated textile fabrics, special woven fabrics,
|Knitted or crocheted fabrics
|Accessories of clothing knitted or crocheted and articles of apparel
|Clothing accessories not knitted or crochetedand articles of apparel
|Other textile articles, sets, worn clothing and rags, worn textile articles
|Footwear, gaiters, and parts of such articles
|Headgear parts thereof
|Umbrellas, walking stick and accessories
|Wigs, artificial flowers, false beards
|Cement, Plaster, mica and construction materials
|Bricks and ceramic products
|Glass and glassware products
|Gold, silver, diamond, pearls and other precious metals
|Iron, steel, Iron rods and non-alloy products
|Railway tracks, iron tube, Containers, nails, needles and sanitary wares
|Copper and copper alloy products
|Nickel and nickel alloy products
|Aluminium and aluminium products
|(Reserved for possible future use)
|Lead, lead foils and sheets
|Zinc bars,Zinc dust and sheets
|Tin, tin bars and profiles
|Cobalt, Magnesium, Bismuth and other base metals
|Agricultural tools, cutlery, razors and knives
|Padlocks, bells, safe deposit lockers and base metal products
|Industrial tools and machinery
|Electrical and electronic products
|Railway machinery and locomotives
|Aircrafts, satellites, parachutes
|Boats, ships, cargo vessels
|Artificial organs, Medical equipment, monitoring systems, photographic, cinematographic accessories, lens and opticals fibres
|Watches and clocks
|All Musical Instruments
|Arms and Military weapons
|Lighting, furniture and household products
|Electronic toys, sports goods and gaming consoles
|Pens, pencils, educational equipments and smoking pipes
|Arts and Antiques
|Passenger baggage, laboratory chemical and project imports
8. How to calculate GST using HSN code?
1. Determine the Taxable Value:
2. Apply the GST Rate:
So, in this example, the total cost of the Mobile Phone including GST would be the sum of the taxable value and the calculated GST amount: Rs. 20,000 + Rs. 2,400 = Rs. 22,400.
Authored by Arghya Sen, 3rd year BALLB Student at Amity University, Kolkata