Glossary
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What is HSN Code?

Introduction to HSN Code

The HSN Code is a standardized international system for classifying goods in international trade, developed by the World Customs Organization (WCO). It is a six-digit code that categorizes over 5,000 products, designed to ensure uniform classification across member countries.

Purpose and Importance

HSN codes serve multiple key purposes in international trade:

Systematic Classification of Goods: Facilitates the categorization of goods in a structured and logical manner.

Taxation and Trade Benefits: Aids in identifying applicable tax rates for specific products, enabling accurate tax calculations and the claiming of trade benefits.

International Trade Efficiency: Enhances the efficiency of international trade by providing a common language for goods, thereby reducing the complexities associated with trade statistics and customs tariffs.

Global Adoption

Worldwide Use: Adopted by over 200 countries, the HSN code system covers nearly 98% of goods involved in international trade, underscoring its effectiveness in fostering global trade cooperation.

Uniform Classification: Despite minor variations to accommodate specific national interests, the HSN number for a commodity remains consistent across most countries, ensuring a high degree of standardization.

HSN Code Structure

Detailed Classification: The HSN system is divided into 21 sections, 99 chapters, 1,244 headings, and 5,224 subheadings, reflecting the diverse range of goods in global commerce.

Coding Breakdown: The structure progresses from broad categories to specific items, starting with two-digit chapter codes, followed by four-digit heading codes, and finally six-digit subheading codes for precise classification.

HSN in India

Adaptation for GST: India uses an extended version of the HSN code, incorporating eight digits for more detailed classification, to align with the Goods and Services Tax (GST) system, facilitating easier tax calculation and compliance.

GST Invoice Requirements: Depending on the business's annual turnover, Indian companies are required to include two, four, or eight-digit HSN codes on their GST invoices, streamlining the tax filing process and ensuring consistency in goods description.

Conclusion

The HSN Code is a critical element in international trade, serving not only as a tool for uniform classification and taxation but also as a means to simplify and enhance the efficiency of trade processes. Its adoption across a vast majority of trading nations stands as a testament to its effectiveness in promoting global trade harmony.