Stakeholders in international trade, governments, and enterprises can benefit from adopting and using Harmonised System of Nomenclature (HSN) codes. Products can be categorised systematically and widely using HSN codes, a standardised item categorization system. The principal benefit is their ability to simplify and expedite intricate trade procedures.
HSN codes make things easier to understand and communicate domestically and internationally by giving distinct codes to different product types. This standardised classification is a vital tool for companies trying to negotiate the complexities of global trade since it facilitates customs procedures and improves tariff determination accuracy.
Advantages of HSN Codes
Worldwide, 200 countries follow HSN codes to classify their products used for trading purposes. There are approximately 5000 commodities that are part of HSN coding that offer the following advantages:
- HSN codes draft the basis of the customs tariffs, which are essential in global trade.
- These codes assist in the even classification of all products.
- With the help of HSN codes, businesses, governments, and other relevant stakeholders can gather the required business statistics. These statistics can help create better trade policies, rules, and regulations.
Benefits of Incorporating HSN Codes
The primary benefit that a business or government on a large scale can get from using HSN codes is the equal classification of its products. Since the HSN codes are globally recognised, it becomes easier to understand the trade language worldwide. Thus, it helps simplify the overall trade process, both domestically and internationally.
There are 98% of products that are labelled and listed in accordance with the HSN codes worldwide. Additionally, this method has been used for a very long time in several countries, including India. Even though the GST laws were recently adopted in India, these HSN codes date back to a time before GST existed. Using HSN codes has helped traders in India do seamless business with different parts of the world.
Additionally, the incorporation of HSN codes has also benefited the taxation process. Because of these HSN codes, it is becoming easier to identify the tax slabs of the products under GST. It has also saved time by mentioning the required digits in the GSTR-1 form instead of writing a detailed description of various goods in the sales invoice.
Positive Impacts of HSN Codes on Business
The significant impact that HSN codes can have on business functionality is broader than just one department or area. Listed below are reasons any business should look forward to implementing these HSN codes.
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Inventory Management
The inventory is sorted out automatically when the products are strategically and logically classified. After assigning a unique code to each product, it can become easier for the companies to manage, organise, and track stock quickly and efficiently.
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Import and Export
HSN codes can significantly help companies with their import and export businesses. If they mention accurate codes, the customs declaration will have no difficulty, ensuring a seamless flow of goods across borders.
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Pricing Strategies
One of the advantages of HSN codes is that they can be used to figure out the tax rates in the GST portal. Therefore, tax rates and export/import duties can be determined by HSN codes, which impact pricing decisions. They can help businesses choose prices that are competitive and precisely evaluate costs.
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Market Expansion
HSN codes can come in very handy for doing market analysis. Businesses can use this data to determine the demand in specific areas, which can further assist in making informed and strategic decisions.
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Law and Compliance
In India, it is necessary to follow and adhere to the HSN codes to comply with legal law and compliance. Following it properly will ensure the business does not make any mistakes and thus avoid all penalties and fines.
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Transparency
Product categories are made more transparent by using HSN codes. It can further help companies better comprehend and convey the features of their goods locally and abroad.
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Easy Taxation
Tax calculations can be made easy and simpler by incorporating HSN codes. This is because they simplify tax compliance by offering a consistent method for determining relevant tax rates.
Streamlining Processes With HSN Codes
Streamlining different procedures across sectors is mainly driven by adopting these HSN codes. These numbers, assigned to various products, are essential in streamlining intricate trade and commerce-related processes. A notable advantage is apparent in customs clearance, where the uniform categorization offered by HSN codes promotes a more seamless and effective workflow.
Moreover, businesses can minimise the possibility of mistakes and delays at borders by precisely and consistently declaring the nature of their goods. Furthermore, by using HSN codes, businesses can accurately track and classify their products, which helps with inventory management.
Additionally, these HSN codes also allow tax authorities to apply precise and uniform tariffs. It further streamlines the approach to taxes. Therefore, by using HSN codes, businesses can maximise productivity, reduce mistakes, and easily handle the complexities of international trade.
HSN Codes for Efficient Taxation
So, how exactly do HSN codes support GST and taxation? If the taxpayer falls into one of the mentioned categories, they are supposed to include the HSN code during their invoice preparation and GSTR-1 return filing.
| Sno. | Annual Turnover (in the preceding financial year) | HSC Code digits |
| 1 | Up to INR 5 crores | B2B tax invoices: 4 digits (mandatory)
B2CS tax invoices: 4 digits (optional) |
| 2 | More than INR 5 crores | B2B and B2CS tax invoices: 6 digits (mandatory) |
Enhancing Accuracy Through HSN Codes
HSN codes will significantly impact how the Indian tax system operates. HSN codes will help improve the entire process’s accuracy, efficiency, and transparency. All this will happen because of the following:
- It will help identify the accurate tax applicable to each product.
- It will reduce errors and discrepancies during tax calculations.
- HSN codes will assist in streamlining the tax system and eliminating or reducing taxpayers’ burden.
- Since HSN codes will assist in automatic tax calculations, manual work will be eliminated, and accuracy will be maintained.
To Sum It Up
The benefits of using HSN codes are widespread in global trade and business. These codes significantly improve operational efficiency, accuracy in customs procedures, inventory management, and the classification of commodities. Companies win from more straightforward tax computations and better compliance. On the other hand, governments get access to more precise data to create policies. HSN codes’ uniformity and transparency provide a common language for international trade, encouraging cooperation and communication amongst various stakeholders.
FAQs
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Is there any advantage to using the HSN code?
Using a standard 6-digit number, the HSN code categorises over 5,000 goods types. A uniform classification can be achieved by employing predetermined rules thanks to the codes’ logical and lawful arrangement.
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What is the HSN code?
The HSN code is the Harmonised System of Nomenclature code, used to classify goods worldwide.
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Does everyone need to mention the HSN code in their invoices?
Taxpayers with a turnover of INR 5 crore or less have to mention only four digits, whereas everyone above INR 5 crore needs to mention six digits of the HSN code.
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Is there an HSN code for services as well in GST?
The HSN code is only for goods in GST and not for services. For services, there is a SAC code.
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How many countries worldwide are using HSN codes?
There are 200 WCO members worldwide who are using HSN codes to classify their goods.
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What is the HSN code for gold?
The HSN code for gold (including gold plated with platinum), unwrought, in semi-manufactured forms, or powder form—non-monetary—is 7108.
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Is there a particular HSN code for Amazon?
Since HSN codes are used to classify goods for taxes and customs duties, the Amazon HSN code is not unique to Amazon. Depending on the kind of product being sold, an Amazon product’s HSN code may vary.
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What is the minimum number of the HSN code?
Taxpayers must mention a minimum of a 4-digit HSN code in their invoices. It can also increase to 6 digits if the taxpayer’s annual turnover is higher.
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Are HSN and ITC codes the same thing?
The Indian Trade Classification, or Indian Tariff Code, is called ITC. HSN stands for the Harmonised System of Nomenclature, a global system of codes used to classify and identify various products.
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Who creates the HSN codes?
The World Customs Organisation creates the HSN codes. The codes were first introduced in 1988 and change every 5–6 years.
