The Harmonized System of Nomenclature (HSN) is an international system used to give a special code to every type of product. It was developed by the World Customs Organization (WCO) so that goods can be identified and taxed uniformly all over the world.
In GST, HSN codes help to make sure that right tax has been applied on tax invoice and also avoid classification error.
What is HSN?
The term HSN stands for Harmonized System of Nomenclature. It is used to classify goods.
History of HSN
HSN was developed by the World Customs Organization (i.e.; WCO) and it came in to effect on 1 January, 1988. The WCO developed it to provide a uniform system for classifying traded goods all over the world.
As of now, about 5000 commodity groups are covered by HSN system and more than 200 countries are using it. Under HSN system, as developed by SCO, each item is identified by a Six-digit-Code as shown in the table below.
However, each country can add more digits for further detailed classification and some differentiation.
| HSN Structure provided by WCO | |
| Digits | Reference |
| First 2 digits | Represent – Chapter (i.e.; broad category of goods) |
| Next 2 digits | Represent – Headings (i.e.; sub category of goods) |
| Last 2 digits | Represents -Sub Headings (i.e.; specific product) |
Entry of HSN in India under GST System
India adopted HSN system under Goods and service Tax (GST), as per the Customs Tariff Act 1975. Section 5 of the Customs Tariff Act 1975, empowers to classify the goods as per HSN system which is aligned with the HSN system as provided by the World Customs Organization (WCO).
Since India is also a member of WCO, therefore, it adopted HSN system as developed by WCO, while implementing GST. However, India has added 2 extra digits (as extension), to the HSN structure of six digits, for further detailed classification and differentiation of GST rates.
The structure of total-8 digits is shown in the table below:
| HSN Structure adopted by India under GST system | |
| Digits | Reference |
| First 2 digits | Represent – Chapter (i.e.; broad category of goods) |
| Next 2 digits | Represent – Headings (i.e.; sub category of goods) |
| Next 2 digits | Represent -Sub Headings (i.e.; specific goods) |
| Last 2 digits | Represent – Indian extension for detailed classification and differentiation of GST rates. |
Let’s understand with an example:
The 8 -digits HSN code of— Cotton, not carded or combed cotton, not carded or combed: Indian Cotton: Bengal Deshi is 52010011.
Let’s bifurcate the HSN code 52010011 by applying the rule as explained above:
| HSN Structure -52-01-00-11 | |
| Digits | Reference |
| First 2 digits— “52” | Represent – Chapter 52 (i.e.; broad category of Cotton) |
| Next 2 digits— “01” | Represent – Headings (i.e.; sub category of cotton —not carded or combed) |
| Next 2 digits—”00” | Represent -Sub Headings (i.e.; specific cotton —not carded or combed—Indian Cotton) |
| Last 2 digits— “11” | Represent – Indian extension for detailed classification and differentiation of GST rates (Bengal Deshi cotton) |
Service Accounting Code (SAC) in GST
As HSN codes are used for classifying the goods, likewise, Service Accounting Codes (SAC) are used to classifying the services under GST. You can access our detailed blog on service accounting code (SAC) through the following Link:
Provisions regarding HSN code under GST
As of now, there is no specific section under the CGST Act 2017, that directly provides the mechanism for classifying the goods. However, section 9 of the CGST Act 2017, is a charging section which imposes GST on goods supplied and rule 46 of the CGST rules 2017, requires to use HSN code on tax invoice. For this purpose, the Customs Tariff Act is used and the Government has notified it through Notification No. 1/2017-Central Tax (Rate), dated 28-6-2017.
This Notification specifically mention that goods are to be classified as per the headings, subheadings, and tariff items of the First Schedule to the Customs Tariff Act 1975.
Who are required to use HSN code?
The combined reading of first proviso to rule 46 of the CGST Rules, 2017 and Notification No.12/2017-Central Tax dated 28.06.2017 read with notification No. 78/2020 – Central Tax, dated 15th October, 2020, provides the following explanations:
| HSN code Requirement- “Based on turnover” with effect from 1 April 2021 | ||
| If Annual Aggregate Turnover in Previous Financial Year is: – | For B2B (Business to Business) Invoices | For B2C (Business to Customer) Invoices i.e.; {Retail Customers} |
| Up to INR 5 crore | HSN code of 4-digits is mandatory to be mentioned on tax invoice. | HSN code is not mandatory to be mentioned on tax invoice. |
| Above INR 5 crore | HSN code of 6 digits is mandatory to be mentioned on tax invoice. | HSN code of 6 digits is mandatory to be mentioned on tax invoice. |
Mandatory use of 8 Digits HSN Code
The following registered persons are required to mention 8-digits HSN code, regardless of the aggregate turnover, on their tax invoices: –
- Importers and Exporters
- Specified chemical suppliers as per Notification No. 90/2020 – Central Tax dated 01st December, 2020. https://gstcouncil.gov.in/sites/default/files/2024-05/notfctn-90-central-tax-english-2020.pdf
However, business other than importer, exporters, and suppliers of specified chemicals as mentioned above, can choose to use 8 digits HSN code if they wish.
Let’s understand with an example:
Suppose, you are a supplier of cotton type—” Cotton, not carded or combed cotton, not carded or combed” and you are neither an importer or an exporter and having B2B-Annual Aggregate Turnover (AATO) in the preceding financial year 2024-25:
- INR 4 Crore: In this case you would use 4-digits HSN code 5201 on your tax invoices of financial year 2025-26.
- INR 6 Crore: In this case you would use 6-digits HSN code 520100 on your tax invoices of financial year 2025-26.
If you are an importer/exporter and dealing specifically in Bengal Deshi cotton, In this case you would use 8-digits HSN code 52010011 on your tax invoices of financial year 2025-26.
How can you find HSN code?
Step 1 : You may access the website of world customs organization (WCO) to know the chapter and broad category of the goods in which you are dealing with. The latest HSN code edition — “HS 2022” can be accessed through the below link:
Step 2: After knowing the broad category of the goods in which you are dealing with in step 1 above, you may use the HSN tool as provided by the government on their GST website and that may be accessed through the following link:
https://services.gst.gov.in/services/searchhsnsac
Where to report HSN code in GSTR-1?
Information related to supply is required to be reported in “Table-12” of form GSTR-1. The required information is reported in the following format:
- HSN**
- Description
- UQC (Unique Quantity Code like, Liter, Kgs, PCS etc.) **
- Total Quantity**
- Total Taxable value**
- GST Rate**
- Integrated Tax (IGST)**
- Central Tax (CGST)**
- State/UT Tax (SGST/UGST)**
- Cess ( if applicable)
** These fields are mandatory.
FAQ’S
1. Is HSN code mandatory for composition dealer?
No, Composition scheme dealers are not eligible to charge GST as they issue Bill of Supply. They can not issue tax invoices.
2. What happens if you use wrong HSN code on tax invoice?
If you use wrong HSN code on tax invoice then you may face the following consequences:
- As HSN codes are linked to GST rates. If you use the wrong HSN code, it will result in a wrong tax liability.
- Tax Invoice can be considered as invalid that will challenge the legality of the Tax invoice.
- Mismatch in HSN code may lead to mismatch in GSTR-1/GST2B, which may lead to denial of input tax credit (ITC) to buyer.
- You may face the financial penalty of INR 50,000/- of section 125 of the CGST Act for mentioning the incorrect HSN code on tax invoice and in GSTR-1.
3. Is HSN code required for services?
No, HSN codes are used to classify the goods. For classifying the services, service accounting codes (SAC) are used.
4. I am dealing in 2 products. Can I use same HSN code?
No, if second product is altogether different then you cannot use the same HSN code as you are using it for your first product. If your both products fall under the same category the you ay use the same HSN.
