The Harmonized Commodity Description and Coding System generally referred to as "Harmonized System of Nomenclature"*or simply *"HSN" is a multipurpose international product nomenclature developed by the World Customs Organization. The purpose of using the HSN codes is to ensure that GST invoicing practices are in tune with international standards of product nomenclature.
Why is it required?
Every business is required to declare a list of goods they are dealing into. This declaration is required along with the HSN code of such commodity. The system will automatically pick tax rate under GST regime based on these HSN codes. Thus it is of utmost importance to mention correct HSN codes at the time of enrollment or registration under GST.
Under GST, tax slabs have been fixed at 0%, 5%, 12%, 18% and 28%. While staple and unbranded food products have been placed under the zero and five percent tax brackets, the highest tax bracket is for luxury goods like high-end cars, and sin category products like tobacco and cigarettes.
Under GST, there are three different types of HSN Codes a dealer can use. There are two-, four-, or eight-digit HSN codes for commodities, and their use depends on the dealer's turnover in the previous financial year. According to the law:
Dealers with an annual turnover of less than Rs 1.5 crores are not required to use HSN codes when creating invoices or filing returnsDealers whose annual turnover is between Rs 1.5 crores and Rs 5 crores need to use the right two-digit HSN code for their commodities when invoicing or filing returnsDealers with annual turnover equalling Rs 5 crores and above must use a four-digit HSN code for their invoicesIn the case of import or export of goods, using the right HSN codes of eight digits is compulsory, as these GST-compliant invoices also have to be compatible with international invoicing standards and practices.