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:

  • Global Standardization: HSN codes provide a globally recognized and standardized system for classifying goods. This facilitates international trade by ensuring a common language and classification system for products traded between countries.
  • Cost Minimization: The use of HSN codes helps minimize costs associated with customs procedures. By providing a standardized and internationally accepted coding system, HSN codes contribute to the efficiency of customs clearance processes, reducing delays and associated costs.
  • Simplification of Customs Procedures: HSN codes simplify customs procedures by providing a systematic and standardized method of classifying goods. This not only streamlines the customs clearance process but also reduces the likelihood of errors or discrepancies in the classification of products.
  • GST Rate Determination: HSN codes play a crucial role in determining GST rates for specific goods. The codes are linked to different tax rates, helping taxpayers and businesses easily identify the applicable rate for a particular product. This clarity contributes to better tax compliance.
  • Facilitates Taxpayer Understanding: For taxpayers, especially businesses involved in import and export activities, HSN codes serve as a valuable tool for understanding the GST rates associated with specific products. This knowledge is essential for accurate tax calculation and reporting.
  • Mandatory for GSTR Forms: The use of HSN codes is mandatory while filling out GSTR (Goods and Services Tax Return) forms. Including HSN codes in these forms ensures that the tax authorities have a detailed and standardized record of the goods being traded, promoting transparency and accountability.
  • Accurate Data Compilation: HSN codes contribute to accurate data compilation and analysis for tax authorities. They provide a structured and organized way to categorize goods, making it easier for authorities to monitor and analyze trade patterns and tax collections.
  • Uniformity in Taxation: By adopting HSN codes, India aligns itself with international standards, promoting uniformity in the taxation of goods. This not only enhances the ease of doing business but also fosters a more consistent and transparent tax system.

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:

  • If the business turnover is less than Rs. 1.5 crores, there is no mandatory requirement to adopt HSN codes.
  • If the turnover is between Rs. 1.5 crores to Rs. 5 crores, businesses must adopt 2-digit HSN codes.
  • If the turnover is above Rs. 5 crores, businesses must adopt 4-digit HSN codes.
  • For import, export, and international trades, 8-digit HSN codes are recommended.

Structure of HSN Codes: The HSN code system organizes goods into the following categories:

  • Sections: There are 21 sections that broadly categorize goods based on their nature.
  • Chapters: There are 99 chapters that provide a more detailed classification.
  • Headings: There are 1244 headings that further specify the characteristics of the goods.
  • Subheadings: There are 5244 subheadings, offering the most detailed level of classification.

Example of HSN Code Structure: As an example, consider an 8-digit HSN code: 1234.56.78.

  • The first two digits (12) represent the chapter.
  • The next two digits (34) represent the heading.
  • The next two digits (56) represent the subheading.
  • The last two digits (78) provide a further level of detail.

Application in GST:

  • In the context of the Goods and Services Tax (GST), businesses are required to mention the appropriate HSN code on invoices and in GST return forms (GSTR).
  • The adoption of HSN codes aids in the calculation of GST rates applicable to specific goods, facilitating accurate tax compliance.

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:

  • HSN Code Structure: The HSN code is a numerical system with different levels of classification.
    • First 2 digits: Chapter (Broad category)
    • Next 2 digits: Heading (Specific category)
    • Next 2 digits: Sub-heading (Detailed description)
    • Last 2 digits: Further classification (Product variant)

ii. Identify Your Product:

  • Chapter: Determine the broad category your product falls under. For example, electronics, chemicals, textiles, etc.
  • Heading: Specify the more detailed category within your broader category. For instance, if it’s electronics, is it a computer, a television, or a smartphone?
  • Sub-heading: Get even more specific about your product. If it’s a smartphone, does it fall under the category of high-end smartphones, budget smartphones, etc.?
  • Last 2 digits: These add extra specificity. For example, a specific model or variant of a smartphone.

iii. Refer to HSN Code Lists:

  • Each country usually has an official list of HSN codes. You can find these lists online or through other resources.
  • Check the descriptions in these lists to match your product.

iv. Consider Your Business Turnover:

  • If your business turnover is below a certain threshold, you might not be required to adopt HSN codes. Check the regulations applicable to your business.

v. Keep it Simple:

  • Don’t overcomplicate things. Choose the code that best fits your product based on its nature, composition, and use.
  • The goal is to ensure accurate classification for taxation and trade purposes.

vi. Accuracy Matters:

  • Choosing the right HSN code is crucial for accurate tax calculation and compliance.
  • Inaccuracy may lead to complications during customs procedures and financial audits.

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)

  • The first two digits (85): This represents the chapter under HSN codes, which broadly categorizes the product.
  • The next two digits (28): These indicate the heading under the chapter, providing a more specific classification.
  • Next 2 digits (12): These indicate the sub-heading, offering further details about the product. The 6-digit HSN code is generally accepted worldwide for standard classification.
  • The last 2 digits (11): This sub-classifies the product tariff heading during the import and export of supply. It provides additional specificity to identify the particular type or variant of the product.

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 Description
Chapter 1 Live Animals and poultry
Chapter 2 Animal Meat and edible offals
Chapter 3 Fish, fillets and other aquatic animals meat
Chapter 4 Honey, Eggs and Dairy Products
Chapter 5 Inedible animal products (unspecified)
Chapter 6 Flowers, Live trees and plants
Chapter 7 Vegetables
Chapter 8 Fruits
Chapter 9 Tea, coffee, spices
Chapter 10 Cereals and Grains
Chapter 11 Milling Industry Products
Chapter 12 Medicinal Plants, seeds and fruits
Chapter 13 Lac, Gums, Resins, vegetable SAP and other extracts
Chapter 14 Vegetable products and materials (unspecified)
Chapter 15 Oils, Fats, Vegetable and Animal products  
Chapter 16 Fish and aquatic vertebrates meat (Prepared/Preserved)
Chapter 17 Sugar, sugar confectionery and bubble gums
Chapter 18 Cocoa and Cocoa products
Chapter 19 Pastry, pizza, bread, waffles
Chapter 20 Fruits, Juices, Jams and Jellies
Chapter 21 Tea, coffee and other edible preparations
Chapter 22 Non-alcoholic beverages, Spirit and Vinegar
Chapter 23 Residual starch products, meals, and pellets
Chapter 24 Tobacco and tobacco products
Chapter 25 Salts and Marbles
Chapter 26 Mineral ores and concentrates
Chapter 27 Coal, Petroleum and other fossil fuels
Chapter 28 Gases and Inorganic Chemicals
Chapter 29 Hydrocarbons
Chapter 30 Blood and Pharma products
Chapter 31 Fertilizers and unspecified products
Chapter 32 Colouring and Tanning products
Chapter 33 Cosmetics and oils
Chapter 34 Soaps and waxes
Chapter 35 Glues and Enzymes
Chapter 36 Industrial explosives and fireworks
Chapter 37 Photographic and cinematographic goods
Chapter 38 Chemicals and clinical wastes
Chapter 39 Plastic products
Chapter 40 Rubber and rubber products
Chapter 41 Skins and rawhides
Chapter 42 Leather products: Bags, wallets, and handbags
Chapter 43 Raw and artificial fur products
Chapter 44 Wood products and Wood charcoal
Chapter 45 Natural and Shuttlecock Cork
Chapter 46 Basketware, of esparto or of other  plaiting materials; wickerwork and manufacturers of Straw
Chapter 47 Wood Pulp
Chapter 48 Paper, Paperboard,  Newsprint
Chapter 49 Printed Books, Newspapers and Postal goods
Chapter 50 Silk
Chapter 51 Fine, woolor coarse animal hair; woven fabric andhorse hair yarn
Chapter 52 Cotton
Chapter 53 paper yarn and woven fabrics of paper yarn and Other vegetable textile fibres
Chapter 54 Man-made filaments
Chapter 55 Man-made staple fibres
Chapter 56 Cables,ropes, felt and nonwovens,cordage, wadding; special yarns; twine and articles thereof
Chapter 57 Carpets and other textile floor coverings
Chapter 58 Fabrics of tufted textile, lace; tapestries,trimmings; embroidery
Chapter 59 Coated and laminated textile fabrics, special woven fabrics,
Chapter 60 Knitted or crocheted fabrics
Chapter 61 Accessories of clothing knitted or crocheted and articles of apparel
Chapter 62 Clothing accessories  not knitted or crochetedand articles of apparel
Chapter 63 Other textile articles, sets, worn clothing and rags, worn textile articles
Chapter 64 Footwear, gaiters, and parts of such articles
Chapter 65 Headgear parts thereof
Chapter 66 Umbrellas, walking stick and accessories
Chapter 67 Wigs, artificial flowers, false beards
Chapter 68 Cement, Plaster, mica and construction materials
Chapter 69 Bricks and ceramic products
Chapter 70 Glass and glassware products
Chapter 71 Gold, silver, diamond, pearls and other precious metals
Chapter 72 Iron, steel, Iron rods and non-alloy products  
Chapter 73 Railway tracks, iron tube, Containers, nails, needles  and sanitary wares
Chapter 74 Copper and copper alloy products
Chapter 75 Nickel and nickel alloy products
Chapter 76 Aluminium and aluminium products
Chapter 77 (Reserved for possible future use)
Chapter 78 Lead, lead foils and sheets
Chapter 79 Zinc bars,Zinc dust and sheets
Chapter 80 Tin, tin bars and profiles
Chapter 81 Cobalt, Magnesium, Bismuth and other base metals
Chapter 82 Agricultural tools, cutlery, razors and knives
Chapter 83 Padlocks, bells, safe deposit lockers and base metal products
Chapter 84 Industrial tools and machinery
Chapter 85 Electrical and electronic products
Chapter 86 Railway machinery and locomotives
Chapter 87 Motor vehicles
Chapter 88 Aircrafts, satellites, parachutes
Chapter 89 Boats, ships, cargo vessels
Chapter 90 Artificial organs, Medical equipment, monitoring systems, photographic, cinematographic accessories, lens and opticals fibres  
Chapter 91 Watches and clocks
Chapter 92 All Musical Instruments
Chapter 93 Arms and Military weapons
Chapter 94 Lighting, furniture and household products
Chapter 95 Electronic toys, sports goods and gaming consoles
Chapter 96 Pens, pencils, educational equipments and smoking pipes
Chapter 97 Arts and Antiques
Chapter 98 Passenger baggage, laboratory chemical and project imports
Chapter 99 Services

8. How to calculate GST using HSN code?

  • Mobile Phone price: Rs. 20,000
  • HSN Code: 8517
  • GST Rate: 12%

Calculation:

1. Determine the Taxable Value:

    • The taxable value is the price of the Mobile Phone before GST is applied. In this case, it’s Rs. 20,000.

2. Apply the GST Rate:

    • The GST rate for Mobile Phones is 12%.
    • GST Amount = (Taxable Value * GST Rate/100)
    • GST Amount = (Rs. 20,000 * 12/100) = Rs. 2,400

Result:

  • The GST amount for Mobile Phones, considering a price of Rs. 20,000 and a 12% GST rate with HSN code 8517, is Rs. 2,400.

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.

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Authored by Arghya Sen, 3rd year BALLB Student at Amity University, Kolkata 

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One Comment

  1. Rajan Belani says:

    Today i have study your article on H S N CODE in g s t … you have given an emample of L.E.D.T.V. FOR H S N CODE and mntion code no. 85281211 i find in relative book ,but it is not there which you have mention. therefore pl. veryfy same.and rectify mistake.
    Regards
    Rajan Belani

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