HSN Codes - A Practical Guide
The Harmonized System of Nomenclature (HSN) is an internationally standardized system for classifying traded products. In India's GST regime, HSN codes are mandatory for invoicing and determining tax rates.
What are HSN Codes?
HSN is a 6-digit international standard developed by the World Customs Organization (WCO) to classify goods in a systematic manner. Over 200 countries use this system for customs procedures and trade statistics.
Global Standard
HSN codes are used worldwide, making international trade documentation consistent and enabling better trade analysis and tariff determination across countries.
HSN Code Structure
Understanding the 6-Digit System
HSN codes follow a logical hierarchy:
Example: HSN 8517.12 (Smartphones)
Chapter Level (First 2 Digits)
85 = Electrical machinery and equipment
- 21 Sections covering all goods
- 99 Chapters with specific themes
- Broad categorization by material or function
Common Chapters:
- Chapter 84: Nuclear reactors, boilers, machinery
- Chapter 85: Electrical machinery and equipment
- Chapter 87: Vehicles other than railway
- Chapter 61-63: Textiles and clothing
Heading Level (First 4 Digits)
8517 = Telephone sets, including smartphones
- More specific product categories
- Thousands of headings under each chapter
- Primary classification for most purposes
Examples in Chapter 85:
- 8504: Electrical transformers
- 8517: Telephone sets
- 8528: Television sets and monitors
Subheading Level (All 6 Digits)
851712 = Smartphones
- Most specific international classification
- Exact product identification
- Basis for GST rate determination
Subheadings under 8517:
- 851711: Line telephone sets
- 851712: Smartphones
- 851719: Other telephone sets
Indian Extensions
8-Digit HSN Codes
India uses 8-digit HSN codes for detailed classification:
Example: 8517.12.10 (Smartphones with specific features)
- 7th & 8th digits: India-specific sub-classifications
- More granular rate determination
- Statistical purposes and detailed trade analysis
Tariff Items
Some products have even more specific 10-digit classifications called tariff items for customs purposes.
HSN in GST Context
Mandatory Requirements
Turnover-Based HSN Requirements
| Annual Turnover | HSN Code Requirement |
|---|---|
| Up to ₹1.5 crores | HSN code optional |
| ₹1.5 to ₹5 crores | 4-digit HSN mandatory |
| Above ₹5 crores | 6-digit HSN mandatory |
Note: These limits apply to aggregate turnover in the previous financial year.
Transaction-Specific Requirements
B2B Invoices (Registered Recipients)
- HSN code mandatory regardless of turnover
- 4-digit minimum, 6-digit for large businesses
B2C Invoices (Unregistered Recipients)
- HSN code mandatory if turnover > ₹1.5 crores
- Not required for very small businesses
Export Invoices
- 8-digit HSN code mandatory
- Required for customs clearance
E-way Bills
- HSN code mandatory for goods transportation
- Minimum 4-digit classification required
Non-Compliance Penalties
Wrong HSN Code
- May attract penalty under Section 125/general provisions and demand of differential tax with interest
Missing HSN Code
- Invoice may be considered non‑compliant; recipient ITC at risk
- Penalty for improper invoicing can apply
Audit Issues
- HSN misclassification can trigger detailed audits
- Revenue implications for past periods
Finding the Right HSN Code
Identify Product Category
Determine the basic nature of your product:
- Raw material vs finished goods
- Main component/material
- Primary function or use
Use HSN Search Tools
- Official GST portal HSN search
- iLoveGST HSN finder for quick search
- Customs tariff books for detailed classification
Cross-Reference Similar Products
Look for products with similar:
- Manufacturing process
- End use or application
- Material composition
Verify GST Rate
Confirm the GST rate applicable to your selected HSN code matches expectations
Document Your Choice
Maintain records justifying HSN code selection for future reference and audits
Common HSN Classification Examples (illustrative)
Electronics Industry
| Product | HSN Code | Description | GST Rate |
|---|---|---|---|
| Smartphones | 8517.12 | Telephone sets with computing capability | 12% |
| Laptops | 8471.30 | Portable digital computers | 18% |
| Tablets | 8471.30 | Portable digital computers | 18% |
| Television | 8528.72 | Color TV sets | 18% |
| Mobile Chargers | 8504.40 | Power adapters | 18% |
Textile Industry
| Product | HSN Code | Description | GST Rate |
|---|---|---|---|
| Cotton T-shirts | 6109.10 | Cotton T-shirts, singlets | 12% |
| Jeans | 6203.42 | Men's cotton trousers | 12% |
| Sarees | 6204.69 | Women's garments | 5%/12% |
| Bedsheets | 6302.21 | Cotton bed linen | 12% |
| Towels | 6302.60 | Toilet and kitchen linen | 12% |
Food Industry
| Product | HSN Code | Description | GST Rate |
|---|---|---|---|
| Biscuits | 1905.31 | Sweet biscuits | 18% |
| Chocolate | 1806.90 | Chocolate preparations | 18% |
| Tea | 0902.30 | Black tea | 5% |
| Rice | 1006.30 | Semi-milled or wholly milled rice | 5% |
| Soft Drinks | 2202.10 | Aerated beverages | 28% + cess (commonly) |
SAC Codes for Services
Services use Services Accounting Codes (SAC) instead of HSN:
Common SAC Codes
| Service | SAC Code | Description | GST Rate |
|---|---|---|---|
| IT Services | 998314 | Information technology consulting | 18% |
| Legal Services | 998211 | Legal advisory services | 18% |
| CA Services | 998213 | Accounting and bookkeeping | 18% |
| Transportation | 996511 | Goods transport by road | 5% |
| Construction | 995411 | Construction of residential buildings | 12% |
Service vs Goods
Ensure you're using SAC codes for services and HSN codes for goods. Mixed supplies may require special treatment under GST rules.
Advanced Classification Concepts
Composite Goods
Definition: Goods consisting of multiple components
Classification Rule: Classify based on the component that gives the goods their essential character
Example: Gift sets with cosmetics and accessories - classify based on the predominant component by value
Mixed Supplies
Definition: Supply of multiple goods/services where components cannot be separated
Classification: Based on the principal supply
Example: Restaurant meal with food and service - classified under restaurant service
Packaging and Accessories
General Rule: Accessories and packaging follow the classification of the main product
Exception: When sold separately, classify independently
Best Practices for HSN Classification
Documentation
- Maintain justification for HSN code selection
- Keep product specifications and technical details
- Document similar product classifications for consistency
Regular Review
- Annual review of HSN codes used
- Check for updates in HSN classifications
- Verify rate changes affecting your products
Professional Assistance
- Consult customs experts for complex products
- Industry associations often provide guidance
- Tax professionals can help with compliance
Technology Tools
- Use HSN search software for quick lookup
- Integrate with accounting systems for automatic code selection
- Maintain databases of frequently used codes
Recent Updates and Changes
Digitalization Initiatives
- E-invoice integration with automatic HSN validation
- GST portal enhancements for better HSN search
- API-based HSN verification for businesses
Rate Rationalization
- Periodic rate changes based on HSN classification
- GST Council decisions affecting specific HSN codes
- Exemption notifications for certain categories
International Harmonization
- WCO updates to HSN nomenclature
- India's adoption of international changes
- Timeline for implementation of new classifications
Troubleshooting Common Issues
Conflicting Classifications
Problem: Multiple HSN codes seem applicable Solution: Choose the most specific code or consult expert opinion
Rate Disputes
Problem: HSN code gives unexpected GST rate Solution: Verify with official rate notifications and consider reclassification
Audit Challenges
Problem: Tax authorities question HSN classification Solution: Present detailed justification with technical specifications
Industry-Specific Guidance
Manufacturing
- Raw materials: Often have different HSN than finished goods
- By-products: May need separate classification
- Work in progress: Consider stage-wise classification
Trading
- Imported goods: Use HSN as per import documents
- Branded vs generic: May have different classifications
- Repackaging: Consider if classification changes
Services
- Use SAC codes not HSN codes
- Composite services: Classify based on predominant element
- Digital services: Special SAC codes available
Expert Advice
When in doubt about HSN classification, it's always better to seek professional advice. Incorrect classification can lead to penalties and compliance issues.
ITC linkage
Correct HSN/SAC improves supplier reporting accuracy and your GSTR‑2B; ITC is claimable based on GSTR‑2B subject to eligibility.
Frequently Asked Questions
Can I change HSN codes after filing returns?
Yes, through amendment returns, but may attract penalties if tax difference is involved.
Are HSN codes same for import and domestic sales?
Generally yes, but import classification should match customs documentation.
What if my product doesn't fit any HSN code?
All products have some classification. Use the closest match or consult an expert.
Do I need different HSN codes for different variants?
Yes, if variants have different technical specifications or uses.
For specific HSN classification queries and the latest updates, refer to the HSN Code Finder tool or consult qualified customs and tax professionals.