In the sector of finance, GST has become a ubiquitous term. Everyone is aware of this term. Most of us are well versed with GST and its guidelines. However, when it comes to the HSN Code, most of us are not very familiar with it. It is a classification system used to classify goods and services for taxation purposes. HSN Code is an important concept in GST that is essential for properly implementing GST which is mentioned in any WooCommerce GST invoice. Knowing the HSN Code is essential for accurate GST calculations.

This article provides a complete guide about the HSN Code and how to use it for GST calculations.

What is the HSN Code?

The Harmonized System of Nomenclature (HSN) is a coding system that is used internationally to code goods and services. World Customs Organization (WCO) has developed this system to classify all goods systematically. 

This system was introduced in 1988 and embraced by approximately 200 countries to ensure consistency in categorising goods for Customs purposes.

Concept of HSN Code Under GST

HSN Code became more relevant with the introduction of the GST (Goods and Service Tax) in India. Businesses whose annual turnover exceeds INR 1.5 crores have to provide the HSN Code for the goods and services they are offering or purchasing. 

The purpose of the HSN Code is to identify the goods and services being traded which helps in accurately determining tax liability. It is a crucial part of any invoice like WooCommerce GST invoice and it is mandatory to mention this code in the invoice. 

Their respective HSN Codes determine the GST rate for goods and services. This emphasises the crucial need for businesses to provide the HSN Code when filing their GST returns accurately.

How Does HSN Code Work?

Many regulations govern trade between two parties, including two nations, imposing rigorous contractual requirements and policy compliances.

To ensure there is no confusion throughout the trade, the Harmonized System of Nomenclature (HSN codes) come into play. 

Businesses comprehensively understand the HSN code as a logical representation of items.

For example – When you mention “dhoop” or “agarbatti,” a company owner in the UK might not know what you mean, but they can easily Google up 3307 41 00 to find out the usual meaning, which in this case is “incense.” 

This 3307 41 00 is the HSN code for Agarbatti.

Structure of HSN Codes

HSN is the six-digit code which is later divided into the different categories and subcategories. The first two letters of this six-digit indicate the chapter under which goods and services fall. Heading under chapter is denoted by the next two digits whereas the last two digits are for the product and service classification under the heading. 

Take the HSN Code for “Books” (4901) as an example. The first two digits, “49,” indicate Printed Books, Brochures, Leaflets, and Similar Printed Matter. The following two digits, “01,” signify Printed books, brochures, leaflets, and similar printed matter. Lastly, “00” denotes the specific product classification for books.

Benefits of HSN Code

HSN Codes offer multiple benefits, notably in the GST era:

• Uniformity: Ensuring consistent classification of goods and services globally.
• Accuracy: Facilitating precise determination of GST liabilities per item.
• Business Convenience: Simplifying GST return filings by ensuring accurate tax assessment.
• Trade Support: Streamlining trade by offering a standardised classification system for goods and services.

What if you used the wrong HSN Code?

Using an incorrect code as an exporter can cause customs review issues, leading to denied import opportunities, high customs duties, and non-compliance penalties.

Similarly, an inaccurate HSN Code under GST can prevent the buyer from claiming input tax credit. According to Section 31, an invoice must be error-free, including precise HSN code classification, to declare and obtain the input tax credit.

HSN Code in GST Invoice

HSN Code is cited clearly in the GST Invoice. This helps the tax authorities to identify the correct goods and services and the correct taxes applicable to them. It also helps to avoid any discrepancies and disputes that may arise due to incorrect coding.

Every product or service has a specific HSN Code associated with it. It is important because it helps to identify the type of product or service being sold and the taxes applicable to them. It also makes it easier for tax authorities to track and audit transactions. 

Our WooCommerce invoice plugin automates invoice generation and adds product-wise HSN codes in invoices. Additionally, it also calculates and adds product-wise GST in the invoice. 

Utilize our WooCommerce GST Plugin to streamline your business GST-related works. 

Here are a few rules regarding the HSN Code

• The taxpayer with an annual turnover of up to Rs. 1.5 Crors is no need to mention the HSN Code in their taxable invoice. 
• Taxpayer with turnover between Rs. 1.5 crores to 5 crores need to mention two digit HSN code in their taxable invoice. 
• A taxpayer whose turnover exceeds Rs. 5 Crores needs to mention a four-digit code in their taxable invoice. 

Conclusion:- 

The HSN Code system plays a vital role in classifying goods and services under the GST regime, aiding in accurately determining GST liabilities for businesses. It simplifies GST return filings by ensuring precise classification of each item. Moreover, HSN Codes streamline trade by offering a unified classification platform. Hence, it is crucial for businesses to accurately assign HSN Codes to the goods and services they trade to facilitate smooth transactions and compliance. Utilizing the WooCommerce invoice plugin can help your business assign accurate HSN codes in invoices.