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Who is Eligible for HSN Code in GST?

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Last Updated on August 31, 2023 by Kanakkupillai

Who is Eligible for HSN Code in GST?

GST is a comprehensive indirect tax levied in India since July 2017. It replaced a complex web of multiple taxes at the state and central levels, unifying the Indian market into a single economic zone. GST subsumes taxes like excise duty, service tax, VAT, and others, streamlining tax administration and reducing cascading effects. This consumption-based tax system aims to create a transparent, efficient, and accountable taxation regime. It benefits businesses by simplifying compliance, reducing tax burdens while the promoting economic growth. The GST registration represents a significant step towards transforming India’s taxation structure and fostering a more unified and integrated economy.

Understanding HSN Code under GST

HSN code is a unique numerical code used to classify goods under the GST system in India. It is a globally accepted system developed by the World Customs Organization (WCO) to facilitate the systematic classification of products based on their nature and other distinguishing features.

In the context of GST, HSN codes are used to categorize goods for taxation purposes. These codes help in determining the applicable rate of tax on various products and streamline the tax calculation process. The HSN code system is essential for businesses to ensure accurate reporting and compliance with GST regulations. It consists of six digits for most goods, while certain specific items may have eight or more digits for more precise classification.

Under the GST system in India, all registered taxpayers who engage in the supply of goods are eligible to use the HSN codes. HSN codes are used to classify goods and services for the purpose of taxation, making it easier to determine the applicable GST rate.

Who is eligible for HSN code in GST?

Businesses that have an annual turnover above a certain threshold are required to register under GST. Once registered, they are expected to provide details of the goods they supply along with the corresponding HSN codes in GST returns. The HSN code helps in the proper identification and categorization of goods, ensuring accurate tax calculation and compliance with GST regulations.

While the use of HSN codes is not mandatory for businesses with an annual turnover below a specified limit, it is still advisable for them to adopt HSN coding to facilitate smoother trade and better understanding of the goods being supplied. It also prepares them for future growth and compliance requirements.

Goods Suppliers

Manufacturers

In India, the applicability of HSN codes in GST is crucial for manufacturers. Under the GST regime, manufacturers are required to use HSN codes for the goods they produce while filing their GST returns. The HSN code helps in the systematic classification of manufactured goods based on their nature, type, and other distinguishing characteristics.

For manufacturers, the HSN code becomes particularly relevant in the following scenarios:

  • Invoice Generation:

Manufacturers must mention the appropriate HSN code for each product on their sales invoices. This is essential for determining the correct GST rate applicable to the goods and for complying with GST regulations.

  • Filing GST Returns:

When manufacturers file their GST returns, they need to provide details of their outward supplies, including the HSN codes of the goods they have sold.

  • Input Tax Credit (ITC) Reconciliation:

HSN codes are used to match the outward supplies of the manufacturer with the inward supplies (purchases) of other businesses. Proper reconciliation helps in claiming Input Tax Credit, ensuring that the manufacturer does not lose out on eligible tax credits.

  • Compliance and Audits:

HSN codes play a crucial role during GST audits and compliance checks. Properly classified goods with accurate HSN codes facilitate easy verification of the manufacturer’s tax liabilities and adherence to GST laws.

Traders

For traders in India operating under the GST regime, the applicability of the HSN code depends on their annual turnover. HSN codes are used to classify goods and services for tax purposes, making tax calculations and compliance easier.

Here’s how the applicability of HSN codes works for traders:

  • Turnover below Rs. 1.5 crores (Small Traders):

Traders with an annual turnover below Rs. 1.5 crores have the option to use the Presumptive Taxation scheme under GST. They are not required to mention HSN codes for their goods in their invoices. Instead, they can use a generic description like “Goods” or “Products.” This provision aims to simplify compliance for smaller businesses.

  • Turnover Rs. 1.5 crores or above (Regular Traders):

Traders with an annual turnover of Rs. 1.5 crores or above must mention the appropriate HSN codes for the goods they trade on their invoices while filing GST returns. The HSN codes help in proper classification, taxation, and reporting of goods.

It’s important to note that while small traders are not required to mention HSN codes in their invoices, they must maintain proper records of their purchases and sales, including HSN code details, to comply with GST regulations.

Importers and Exporters

In India, the applicability of HSN codes in GST is not limited to domestic suppliers only; it extends to importers and exporters as well. HSN codes are used for the systematic classification of goods and services for taxation purposes, making it essential for both importers and exporters to use them in their transactions.

For Importers:

When goods are imported into India, customs authorities require the declaration of HSN codes for the imported products. The importer must provide the correct HSN code on the Bill of Entry and other import-related documents. This helps customs officials and GST authorities determine the applicable rate of GST and other duties.

For Exporters:

Similarly, when goods are exported from India, exporters must mention the relevant HSN codes on the shipping bills and other export-related documents. The HSN code is used to identify the nature of the exported goods and to determine whether they are zero-rated or eligible for any export-related benefits or incentives.

Service Providers

The applicability of HSN codes in GST was primarily related to the classification of goods. However, for service providers in India, the classification system used is the “Service Accounting Code” (SAC) instead of HSN codes.

The SAC system is a unique code issued by the Central Board of Indirect Taxes and Customs (CBIC) to classify various services under GST. Similar to HSN codes, SAC codes are numeric and help in the proper identification and taxation of services provided by businesses.

Service providers in India are required to mention the appropriate SAC code for the services rendered in their GST invoices and returns. The SAC codes assist in determining the correct rate of GST applicable to specific services and ensure compliance with GST regulations.

Please note that tax laws and regulations may evolve over time, so we recommend connecting with trained experts like Kanakkupillai for more details and professional services at the updated rates.

Threshold Limit for HSN Code

There is no specific threshold limit for the usage of HSN codes in the GST system in India. HSN codes are applicable to all registered taxpayers engaged in the supply of goods, regardless of their turnover.

HSN codes are used to classify goods for the purpose of taxation and are an integral part of GST returns. Every taxpayer registered under GST is required to report the HSN codes of the goods they supply in their GST returns. The use of HSN codes helps in the systematic classification of goods, making it easier to determine the applicable GST rate and ensuring accurate tax calculation and compliance.

While there is no threshold for the usage of HSN codes, businesses with an annual turnover above a certain limit are required to register under GST. Those with a turnover below the prescribed threshold may choose to register voluntarily. However, once registered, all taxpayers, irrespective of their turnover, must comply with the rules and requirements related to HSN codes in their GST filings.

Voluntary Registration

Voluntary Registration for GST in India allows businesses with a turnover below the mandatory threshold to choose to register under GST. This registration is optional but can offer several advantages, such as availing input tax credit, participating in inter-state transactions, and gaining credibility in the marketplace. It also ensures compliance with GST regulations for smoother business operations.

Mandatory vs. Optional HSN Code

There is no distinction between mandatory and optional HSN codes in the GST system in India. If a business is registered under GST and is engaged in the supply of goods, it is required to use the appropriate HSN codes to classify the goods being supplied.

HSN codes play a crucial role in the GST framework as they help in identifying and categorizing goods for the purpose of taxation. By using HSN codes, businesses can accurately determine the applicable GST rate on their goods and ensure compliance with GST regulations.

Conclusion

Taking HSN codes in GST is essential as they classify goods for taxation, determine the applicable GST rate, ensure accurate tax calculation, and facilitate compliance with GST regulations, streamlining your business operations.

Looking for expert GST services?

Connect with Kanakkupillai for comprehensive and reliable GST assistance. Our team of professionals is well-versed in GST registration, returns filing, and compliance matters.

Simplify your GST journey with us today. Visit our website or call us now for personalized solutions tailored to your business needs. Take the hassle out of GST and partner with Kanakkupillai!

Kanakkupillai

Kanakkupillai is your reliable partner for every step of your business journey in India. We offer reasonable and expert assistance to ensure legal compliance, covering business registration, tax compliance, accounting and bookkeeping, and intellectual property protection. Let us help you navigate the complex legal and regulatory requirements so you can focus on growing your business. Contact us today to learn more.