HSN code is widely used in many countries for the classification of goods for taxation, claiming benefits, etc. HSN code for each commodity is identical in most countries. In some countries, it may vary slightly based on the nature of classification of goods.
Under the GST regime, all goods will be classified on the basis of the HSN code. Currently, HSN code is primarily used for classifying goods to compute value added tax (VAT) in India. Hence, when preparing tax invoice for GST, you will be required to mention HSN code on the GST invoice.
HSN code can be a two-digit, four-digit, six-digit or eight-digit numeral. There are around 21 classifications of HSN codes, which are further sub-classified into 99 chapters of HSN codes.
HSN codes are primarily used for taxation, especially for import and export purposes worldwide. While a six-digit HSN code is accepted for calculation of export and import duties/levies worldwide, an eight-digit HSN code is used in India.
HSN code shall be used for classifying goods under GST regime. Taxpayers whose turnover is between Rs.1.5 crores and Rs.5 crores shall use a two-digit HSN code, while taxpayers whose turnover is Rs.5 crores and above shall use a four-digit code. Taxpayers with turnover below Rs.1.5 crores will not be required to mention HSN code on their GST invoices. Services shall be defined as per the services accounting code (SAC).
The SAC has not been declared in the Model GST Law, but it will remain the same as the current code system used for service tax.