Very interesting course indeed on as per the Harmonised System of Nomenclature (HSN). HSN has, over the years, developed into an assisted code for different products via a logical and systematic manner. The coding system introduced and developed by the World Customs Organisation (WCO) has received worldwide acceptance and is now part of many tax systems across the world. HSN codes have been used in India within the Central Excise and Customs regime initially, but now they form a crucial part of the Goods and Services Tax (GST) framework in India. This article exposes you to the concept of HSN code concerning GST, its application, and why it matters to your business.
What is HSN Code under GST?
HSN is about how it describes commodities under the Goods and Services Tax (GST). GST legislation requires the application of HSN codes to goods, achieving this goal for the imposition of the correct tax rate on each product. The system relies on a six-digit classification (an extra two digits are given in India for it to be eight digits), so that it identifies the commodity very specifically and thoroughly.
For businesses that involve import or export of goods HSN Codes are very essential condition to fulfill cross border trade successfully because of international tax practices. The government streamlined the usage of HSN Codes by mandating taxpayers to incorporate the same in the tax invoices.
How does HSN code work under GST?
Categories of products comprise the 21 sections of the HSN Code scheme that are further divided into 99 chapters. These chapters comprise headings and subborrowings relating to fixation purposes. These codes enable the goods to be categorized in congruence with nature and extent manufacturing. Natural products, including plants and animals, occupy early brackets, and machines are preceded by other advanced commodities.
India has also expanded the HSN code from the normal six-digit format (set by the world) to eight digits to make it even more granular. This further specificity helps in clearly identifying goods and ideally alleviating doubt while determining the GST percent tagged to different products.
Need for GST HSN Code for Different Branches
The HSN code under GST is not required in case of all the businesses. This requirement depends upon business turnover:
Businesses with turnover greater than or equal to ₹5 crore have to mention HSN code of 4 digits in their invoices.
Businesses with a turnover between ₹1.5 crore and ₹5 crore must use a 2-digit HSN code.
In contrast, businesses with a turnover less than ₹1.5 crore shall not need to mention the HSN code on their invoices, but they must apply the correct code while filing GST returns.
In the case of importers and exporters, an eight-digit HSN code is required. This requirement complies with the international trading standard, thus assuring the alignment of Indian GST practices with global norms.
What exactly is the SAC Code?
Similar to the HSN system of coding goods, the Service Accounting Code is a system of classification of services under GST. Under this classification, services are assigned SAC codes, which the business uses in determining the appropriate GST rate to apply depending on the nature of the service. The design of the code system for services (SAC) ensures uniformity while providing ease of understanding and taxation.
The GST rates for services are fixed for five slabs, namely, 0%, 5%, 12%, 18%, and 28%. These SAC codes operate exactly like the HSN codes, which indicate which rate applies to a given service.
Importance of HSN Codes and SAC Codes
The application of HSN and SAC codes is vital for the smooth functioning of the GST system. HSN and SAC codes are beneficial in several respects to the trade and the governments themselves.
International Compliance: HSN codes ensure that India’s tax system conforms to GST international standards, thus ensuring smooth and transparent cross-border trade.
Application of Tax Rate: With the aid of codes, the proper tax rate for goods and services can be determined, ensuring that businesses levy the correct amount of tax.
Ease of Return Filing: The process of filing GST returns is easy due to HSN and SAC codes. Businesses must key in these codes in their invoices and returns, minimizing manual errors and misinterpretations.
Analysis Purpose: An identical classification will allow governments to analyze economic trends for macroeconomic policy framework making.
Purpose of Assuring No Misinterpretation: The clear classification of goods and services minimizes the chance of tax misinterpretation, thereby guaranteeing fair taxation. All checks and controls that will mostly be put on business environments will also require HSN duties on products.
Where to Search for HSN Code for Your Products?
A complete list of HSN codes and SAC codes can be found on the official GST portal of the government. All the information provided on this portal is comprehensive and up-to-date for all registered taxpayers. There are also several search applications and accounting software available online for businesses to search and find the relevant HSN or SAC code in relation to their products or services in a few clicks.
Further, businesses can download the complete list of HSN codes and their applicable GST rates in PDF or Excel format for easier reference and record-keeping.
The HSN Code for work contracts under GST
According to laws that concern the GST, work contracts may be considered as a service; however, a narrower sense of the said term is limited to work concerning immovable properties, meaning, no longer can works contracts relating to any movable properties be subjected to GST. It is mandatory for businesses to use service accounting codes (SAC) for such purposes. SAC for work contracts is 9954.
Electrical Goods and their HSN codes
This comes under HSN code 85, that is meant for electricity generation machinery or equipment. More precisely, the respective code for electrical insulators and their HSN code is 8546, bearing an 18% GST rate. This particular code is required for ensuring that a business can rightfully meet the tax liability under GST for the electrical goods being dealt with.
How Can We Help?
Finding the right HSN and SAC codes of your services and products for compliance with GST can be overwhelming, especially for businesses that are new to GST compliance. MyAdvo is at hand to assist. We will provide all the necessary assistance to your company in finding the right HSN and SAC codes, according to GST laws. Our panel of professionals is readily available round the clock to counsel you correctly and promptly.
Conclusion
The HSN and SAC codes are significant for GST businesses. Whether you are a manufacturer, importer, exporter, or service provider, knowledge and correct application of codes will keep your business above board as far as the tax laws are concerned, enabling you to avoid penalties and work more efficiently on these tax processes. Make sure to file goods against the right HSN code and services against the right SAC code whenever you are filing returns, and always consult reliable resources or experts for any clarification or doubt.
