HSN codes

HSN stands for Harmonized System of Nomenclature. This system is meant for the uniform classification of products worldwide while also acting as a base for customs tariffs and was developed by the World Customs Organization (WCO) in 1988. 

HSN code is regarded as the global standard for product names. HSN codes provide a standardized way to describe goods and their associated tariffs, helping global governments to streamline trade and reduce bureaucracy. Being a 6-digit uniform code, HSN code is used to classify 5000+ products and is universally accepted.  

In India, HSN codes are used under a three-tiered scheme as a result of the implementation of the GST. Their applicability can be explained in the following manner:

• Businesses with a turnover of less than Rs. 1.5 crore: Not requirement of using the HSN system

• Businesses with a turnover ranging from Rs. 1.5 crore to Rs. 5 crore: Should use 2-digit HSN codes

• Businesses with a turnover of more than Rs. 5 crore: Should use 4-digit HSN codes

• 8-digit HSN codes should be used by businesses that deal in the import and export of commodities

These codes must be mentioned when a business registers for GST, on all their sale invoices, and on GST returns which businesses need to submit on GST Portal.

A product (Good or Service) is classified under sections, chapters, headings, and subheadings

            HSN Code format - [xx]         [xx]           [xx xx]

                                            Chapter    Heading   Subheading

Following example will help everyone understand the HSN code structure:

HSN - 62.13.90 refers to the Textile Handkerchiefs.

• 62 – First two digits of this code represent the chapter number that deals with articles of Apparel and Clothing (excluding knitted or crocheted clothing)

• 13 – Next two digits represent the heading number that deals with handkerchiefs

• 90 – Last two digits represent the product code for handkerchiefs made of textile materials

In India, HSN code for the same product designated for EXIM trade would include 2 more digits

• 62.13.90.10 would be the HSN code for handkerchiefs made of man-made textiles

• 62.13.90.90 would be on the other hand if the products are made from silk or silk waste. The HSN code's final two numbers in this instance represent silk or silk waste.

For MSMEs and exporters, using correct HSN codes can help them improve supply chain efficiency and reduce costs as tariff and non-tariff measures globally are applied on HSN codes. By ensuring that products are properly classified, businesses can avoid delays in customs clearance and minimize the risk of goods being held or confiscated. This can help to ensure timely delivery of goods and maintain customer satisfaction.  In addition to facilitating trade, HSN codes can also help businesses to understand market trends and identify new opportunities. 

By tracking the demand for certain products within specific HSN categories, MSMEs and exporters can better target their marketing efforts and capitalize on emerging markets.  

Overall, understanding and correctly applying HSN codes is crucial for MSMEs and exporters to navigate the global marketplace. By simplifying trade and improving compliance, HSN codes can help small businesses to compete on a level playing field with larger enterprises.