What is the HSN Code?

The HSN code, short for "Harmonized System of Nomenclature," serves as a globally recognized system for categorizing goods. It is an introduction aimed to streamline the classification process of goods on a global scale, ensuring uniformity and facilitating international trade. Each HSN code consists of six digits and is designed to classify over 5,000 products, making it an accepted standard worldwide. Originating from the World Customs Organization (WCO), the HSN code came into effect in 1988, revolutionizing the way products are classified and traded across borders.

How does HSN code work?

With approximately 5,000 commodity groups, the Harmonized System of Nomenclature (HSN) provides a systematic approach to classifying goods. Each group is distinguished by a six-digit code, meticulously organized within a coherent and legal framework. Supported by clear-cut guidelines, the HSN ensures consistent classification, fostering uniformity in the global trade landscape.

Why is HSN important?

The primary objective of the Harmonized System of Nomenclature (HSN) is to methodically categorize goods sourced from various corners of the globe. By doing so, it establishes a structured and coherent approach to classification, ensuring consistency and clarity in identifying different types of products. This standardized classification system greatly simplifies international trade processes, enabling smoother transactions and fostering global economic integration.

HSN Worldwide

The HSN System is utilized by over 200 countries and economies for several compelling reasons:

1. Uniformity: The HSN system offers a standardized method for classifying goods, promoting consistency in trade practices across diverse regions and markets.
2. Simplification: By providing a systematic classification structure, the HSN system simplifies the complex task of categorizing a wide range of products, facilitating smoother customs procedures and trade transactions.
3. Compliance: Adopting the HSN system ensures compliance with international trade regulations and agreements, thereby minimizing discrepancies and ensuring adherence to established standards.
4. Transparency: With its transparent classification approach, the HSN system enhances transparency in trade documentation, enabling stakeholders to accurately interpret and apply tariff schedules and trade policies.
5. Compatibility: As a globally recognized classification system, the HSN facilitates interoperability among different trading partners, allowing for seamless exchange of goods and services across borders.

Services Accounting Code (SAC) in GST

Similar to goods, services undergo uniform classification for recognition, measurement, and taxation. The codes assigned to services are known as Services Accounting Codes (SAC).

For example:

Legal documentation and certification services concerning patents, copyrights, and other intellectual property rights-- 998213

• The first two digits are the same for all services i.e. 99
• The next two digits (82) represent the major nature of service, in this case, legal services
• The last two digits (13) represent the detailed nature of service, i.e., legal documentation for patents, etc.