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Relevance of GST HSN Codes for Indirect Tax Implementation in India: A Review

Article  in  BULMIM Journal of Management and Research · January 2018

DOI: 10.5958/2455-3298.2018.00006.5

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BULMIM Journal of Management & Research (July-December 2018) 3(2): 39–45
DOI: 10.5958/2455-3298.2018.00001.6
Relevance of GST HSN Codes for Indirect Tax
Implementation in India: A Review
Nilanjan Kar1 and Nidhi Sahore2*
1
PGDM (First Year), 2Assistant Professor, Bharatiya Vidya Bhavan’s Usha & Lakshmi Mittal Institute of Management, New
Delhi, India
(*Corresponding author) email id: *nidhi.sahore@yahoo.co.in,nidhisahore@bulmim.ac.in
Abstract
Purpose: Goods and Service Tax (GST) replacing existing
indirect taxes, central value added tax and state value added
tax, in July 2017 is an epoch in Indian tax reforms. However,
the success of GST implementation depends a lot on how it
is designed, so as to decipher it easily. Therefore, the purpose
of this paper is to study the HSN Codes and their usage
under GST so as to add to the existing literature about their
need and importance.
Design/Methodology/Approach: Since, the devil lies in the
details because of the teething troubles associated with GST
implementation. One such teething trouble is identifying one’s
business operations with the exact harmonised system of
nomenclature (HSN) code under the GST law. The list of these
codes is very elaborate, and as the tax to be levied on an
entity depends upon the HSN code under which the entity is
registered for GST, it is all the more essential to understand
and identify these codes correctly with one’s business.
Hence, it is important to approach the topic by reviewing the
existing information/literature and data sources in order to
understand the relevance of HSN codes in the newly
introduced indirect tax collection system in India.
Findings: India by adopting HSN classification for
implementation of GST, will gain recognition and acceptance
from countries around the world that have already adopted
and implemented it. Thus usage of HSN codes will not just
simplify trade but will also make this new GST regime globally
harmonised. Originality value: The paper contributes to the
existing literature on GST implementation in India.
Keywords: Goods and services tax (GST), Harmonised system
of nomenclature (HSN), Indirect taxes, HNS codes, GST
implementation
INTRODUCTION
India in July 2017 ushered in a new era in tax collection when
Goods and Service Tax (GST) replaced many indirect taxes
like sales tax, value added tax (VAT) and so on. It came into
effect on 1 July 2017. The GST Act was passed in the
Parliament on 29 March 2017. The success of GST
implementation depends a lot on how it is designed and how
easy it is understand. No doubt there are a lot of impediments
to its flawless implementation, but its positive impacts on
areas of economic importance, such as agriculture,
manufacturing industry, Micro Small and Medium
Enterprises, housing and other economic indicators, namely
GDP (Gross Domestic Product) growth rates, international
trade, government revenue and inflation and so on, cannot
be overlooked (Vasanthagopal, 2011). However, the devil lies
in the details, because of the teething troubles of
implementation. One such trouble is identifying one’s
business operations with the exact harmonised system of
nomenclature (HSN) code under the GST law. The list of these
codes is very elaborate, and as the tax to be levied on an
entity depends upon the HSN code under which the entity is
registered for GST, it is all the more essential to understand
and identify these codes correctly with one’s business.
OBJECTIVE OF STUDY
The very purpose of this research paper is to study the need
and importance of HSN codes in the newly introduced GST
Tax collection system in India.
BACKGROUND REVIEW
To reduce tax evasion, France became the first country in the
world to implement GST in 1954. China implemented GST in
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1994, Russia did it in 1991 and Saudi Arabia plans to do it in Country GST Rates
2018. GST implementation is a worldwide phenomenon with India 0%, 5%, 12%, 18% and 28%
having more than 160 countries around the world having it Canada 13 to 15%
as a mode of indirect tax collection. An extension to it is its France 20%
dual implementation referred as ‘Dual-GST’ in countries like
United Kingdom 20%
Brazil, Canada and now India (One India Staff Writer, 2017;
New Zealand 15%
Mail Today Bureau, 2017).
Malaysia 6%
India particularly draws its GST model from the Canadian Singapore 7%
model. This model is federal in structure, which means both Compiled from Mail Today Bureau (2017).
states and centre have the power to levy and collect tax. The
reason for this dual system is the variation in the economic By quickly comparing Indian GST rates of 18% (maximum
status of people in India. Western countries do not have this number of commodities falling in this rate) with other
variation; therefore, they can levy one rate of GST, but poor emerging market economies, like China and Brazil with GST
countries have a huge variation amongst the economic rate of 17% and 11%, respectively, we can see that the Indian
classes. Poorer families cannot be burdened with indirect rates by any standards are way too high. Nevertheless there
taxes the same way the rich families are. A pre-version of GST are countries such as France, Germany and United Kingdom
was already in place in India by way of VAT, but it is merely a with rates ranging as high as 19% to 20% (Jaiswar, 2017).
destination-based tax on consumption of goods and services.
Moreover, governance of this tax system is yet to evolve Howsoever, the GST tax rates may vary across these countries,
across the world (Mail Today Bureau, 2017). but one thing is common, that is the use of HSN codes for
deciding which product is to be levied tax at what rate.
In India, we have different sections of society to be looked
after, and it is not possible to have a single-rate GST model. HSN Codes and Their Significance in India’s Trade
But as the progress of different section of the society happens Scenario
with the help of government’s initiatives, then India can shift
to a simpler model of GST with one or two rates – instead of HSN stands for ‘Harmonised System of Nomenclature’ for a
having too many complicated rates. particular good or commodity as defined. HSN is a term

Standard GST/VAT Rates

Note: *The GST structure ranges between 50%-28% with majority to commodities falling under 18% bracket. Source OECD (2016) and
CBEC
Source: Jaiswar (2017).

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introduced by World Customs Organization with the purpose
of identifying and subsequently classifying the goods. This
helps in identifying the goods in a uniform manner across
the world. There is a six-digit code structured in a logical
manner. This system is existent from 1988. There are around
5,000 commodity groups. As far as international trade is
concerned, almost 98% of it depends upon this coding system.
This system is followed in 200 countries for customs tariff
and trade data collection.
In continuation of above, now these codes have also been
harmonised with classification of goods for tax collection in
several countries. The codes associated with a particular
commodity are more or less the same for tax collection
purposes with a few exceptions in certain countries due to
the specific nature of the goods.
To begin with, HSN codes were used in India to calculate
VAT. Now these codes are being adopted for GST
implementation and tax calculation (Clear Tax, 2017, https://
cleartax.in/s/gst-hsn-lookup).
RESEARCH METHODOLOGY
Extensive secondary research has been done related to GST
law and its implementation in India and across the world.
Relevant data and information have been collected and
compiled from published secondary sources like newspaper
articles, reports, published research papers and websites of
national and international repute.
FINDINGS
India has its own GST, which applies to all goods and services
alike. It has replaced many indirect taxes and has reduced the
burden on the end consumer to a great extent. The list of
indirect taxes replaced by GST can be found in Appendix 1.
All these taxes have been replaced with central GST, state
GST and integrated GST (Clear Tax, 2017).
The usage of HSN codes in India dates back to 1986. To
begin with, the six-digit codes were used in India, but on the
behest of Customs and Central Excise Department, two more
digits were added to make it an eight-digit system. Under
GST, a three-tiered structure of HSN codes is to be followed
by Indian businessmen. The rules regarding the usage of
particular tier of HSN codes depends upon the turnover
thresholds set by the tax department for business men. These
rules can be referred in Appendix 2. The HSN structure is
quite an elaborate one with 21 sections, wherein each section
41
is divided into a few chapters and each chapter has certain
number of headings and sub-headings. All in all, it has 99
chapters, 1,244 headings and 5,244 sub-headings. Chapters
describe categories of goods, whereas headings and sub-
headings describe product details. To understand the HSN
codes, the illustration in Appendix 3 can be referred to. To
further help the business men in GST implementation, six
simplified rules are also there. These rules are interpretative
in nature of these first four are applied as per sequence,
whereas the remaining two are applied as and if required.
These rules are listed in Appendix 4 (Bhattacharjee and
Mathur, 2017). The list of 21 sections with their
corresponding broad product categorisation is provided in
Appendix 5.
CONCLUSION
Adoption of HSN code classification of goods by India shall
lead to the global acceptance of its indirect tax system. Also
it is bound to gain recognition from other countries around
the world that have already adopted and implemented GST.
The globally harmonised GST rates and HSN codes will lead
to reduction in the cost and improvement in the international
trade. The ease of doing business in India shall be boosted if
HSN codes are properly understood and applied in identifying
and classifying various goods of indirect tax purposes.
Thus, creating a good understanding of HSN codes shall
simplify the GST implementation process and act as common
connect between the Indian domestic trade and the global
trade. Not just this knowledge of HSN codes will help business
owners to seamlessly file their tax returns through automated
goods identification by designated codes, but also will save
a lot of time of the businessmen. Needless to mention here
that with harmonised codes to identify and classify the goods,
the data collection and statistic generation for a particular
category of goods are going to be become much easier.
REFERENCES
Article published in Masters India, 2017. website titled “HSN code list
& GST rate finder”. https://www.mastersindia.co/gst/hsn-code-
search/.
Article published Clear Tax, 2018. “GST – What is GST in India?
Goods & Services Tax law explained” updated on 3 January 2018,
12:51:35 PM. https://cleartax.in/s/gst-law-goods-and-services-
tax.
Article published Clear Tax, 2018. “GST rates & HSN codes – Know
about all GST tax rates & SAC codes in India for 2017” updated
on 9 January 2018, 12:21:16 PM. https://cleartax.in/s/gst-rates/
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42 BULMIM Journal of Management & Research (July-December 2018) 3(2): 39–45

Article published Clear Tax, 2017. “HSN code list & GST rate finder”.
https://cleartax.in/s/gst-hsn-lookup.
Bhattacharjee M and Mathur A, 15 November 2017. HSN Codes
under GST. http://sourcingelectricals.net/2017/11/15/hsn-codes-
gst/.
Jaiswar P, Monday, 29 May 2017. 11:42 AM, Mumbai. GST in India
Versus GST in the Other Countries: What Differentiates India.
http://www.zeebiz.com/india/news-gst-in-india-versus-gst-in-the-
other-countries-what-differentiates-india-16838.
Mail Today Bureau, 1 July 2017. 13:13 IST. India’s GST Highest in
the World: Here’s What Some Other Countries Charge. http://
www.businesstoday.in/current/economy-politics/indias-gst-
highest-in-the-world-heres-what-some-other-countries-charge/
story/255583.html.
One India Staff Writer, Saturday, 20 May 2017. 12:11 IST. France
1st Country to Implement GST in 1954, China Adopted in 1994.
https://www.oneindia.com/international/france-1st-country-
implement-gst-1954-china-adopted-1994-2440401.html.
Vasanthagopal R, 2011. “GST in India: A big leap in the indirect
taxation system”, International Journal of Trade, Economics
and Finance, Vol. 2, No. 2, pp. 144–146.

APPENDIX

1. List of indirect taxes replaced by GST As India has two more digits for a deeper classification, so
1. Central Excise Duty a) If the handkerchiefs are made from a man-made fibre, the
2. Duties of Excise HSN code is 62.13.90.10.
3. Additional Duties of Excise b) If the handkerchiefs are made from silk or silk waste, then
4. Additional Duties of Customs the HSN code is 62.13.90.90.
5. Special Additional Duty of Customs Source: Clear Tax (2017).
6. Cess
4. List of rules for applying HSN codes
7. State VAT
8. Central Sales Tax The general interpretative rules consist of six rules, of which the
first four are applied in sequence and as they are related. The
9. Purchase Tax remaining two can be applied as and when needed.
10. Luxury Tax
Rule 1: Classifications can be derived as per headings and sub-
11. Entertainment Tax headings, since sections and chapters are for reference and legal
12. Entry Tax purposes only.
13. Taxes on advertisements Rule 2A: Incomplete products which have the same properties
14. Taxes on lotteries, betting and gambling as the finished products are classified the same as the finished
Source: Clear Tax (2017). product. For example, a car without seats is still a car.
Rule 2B: A product’s components which have a mixture of
2. Business owners in India need to follow the following rules
substances shall be classified under a different heading, whereas
in declaring HSN codes:
the mixture can belong to a different HSN.
a) For a turnover of less than INR 1.5 crores, business houses
Rule 3A: The particular heading of the product shall take
need not follow HSN codes.
precedence over the heading of the product. For example,
b) For a turnover exceeding INR 1.5 crores but less than INR chocolate falls under a different heading and attracts its own
5 crores, business houses shall be using the two-digit HSN GST rate, whereas chocolate milk would fall under the milk
codes. beverage classification and not the general milk category, which
c) For a turnover exceeding INR 5 crores, business houses attracts 0% GST rate.
shall be using the four-digit HSN codes. Rule 3B: If a product cannot be classified under the set headings,
d) Business houses that are into imports or exports of then the characteristics of the product can be used for identifying
commodities shall mandatorily follow the eight-digit HSN the HSN.
codes issued by Customs and Central Excise Department
Rule 3C: If a product is well-suited in two headings, then the
of India.
heading which is last in numerical order can be selected.
Source: Clear Tax (2017).
Rule 4: If a product is not classifiable as per the rules, then it
3. HSN code illustration: can be labelled as per the product it most likely resembles.
For handkerchiefs made of textile matters 62.13.90, Rule 5: Products designed as ‘cases’ i.e. outer covering for a
specific product and for the long term will be classified as the
a) First two digits (62) represent the chapter number for articles product itself. For example, mobile covers would be classified
of apparel and clothing accessories, not knitted or crocheted. under mobiles.
b) Next two digits (13) represent the heading number for
Rule 6: When determining the classification of products in
handkerchiefs.
accordance with the sub-heading, the comparable sub-heading
c) Finally, last two digits (90) is the product code for must be of the same level.
handkerchiefs made of other textile materials.
Source: Bhattacharjee and Mathur (2017).

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5. List of HSN sections with corresponding product categorisation for codes.

Sections HSN Code List
Section 1 Live animals, animal products
Section 2 Vegetable products
Section 3 Animal or vegetable fats and oils and their cleavage products, prepared edible fats, animal or vegetable waxes
Section 4 Prepared foodstuffs, beverages, spirits and vinegar, tobacco and manufactured tobacco substitutes
Section 5 Mineral products
Section 6 Product of the chemicals or allied industries
Section 7 Plastics and articles thereof, rubber and articles thereof
Section 8 Raw hides and skins, leather, fur skins and articles thereof, saddlery and harness, travel goods, handbags and similar
containers, articles of animal gut (other than silk-worm gut)
Section 9 Wood and articles of wood, wood charcoal, cork and articles of cork, manufacturers of straw, of esparto or of other
plaiting materials, basketwork and wickerwork
Section 10 Pulp of wood or of other fibrous cellulosic material, recovered (waste and scrap) paper or paperboard, paper and
paperboard and articles thereof
Section 11 Textile and textile articles
Section 12 Footwear, headgear, umbrellas, sun umbrellas, walking sticks, seat sticks, whips, riding crops and parts thereof,
prepared feathers and articles made therewith, artificial flowers, articles of human hair
Section 13 Articles of stone, plaster, cement, asbestos, mica, or similar materials, ceramic products, glass and glassware
Section 14 Natural or cultured pearls, precious or semi-precious stones, precious metals, metal clad with precious metal and
articles thereof, imitation jewellery, coins
Section 15 Base metals and articles of base metal
Section 16 Machinery and mechanical appliances, electrical equipment, parts thereof, sound recorders and reproducers, television
image and sound recorders and reproducers, and parts and accessories of such article
Section 17 Vehicles, aircraft, vessels and associated transport equipment
Section 18 Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus,
clocks and watches, musical instruments, parts and accessories thereof
Section 19 Arms and ammunition, parts and accessories thereof
Section 20 Miscellaneous manufactured articles
Section 21 Works of art, collectors’ pieces and antiques
Source: Clear Tax (2017).

6. List of HSN code chapters and corresponding broad product classification

HSN Code Chapter 01: Live animals
HSN Code Chapter 02: Meat and edible meat offal
HSN Code Chapter 03: Fish, crustaceans, aquatic invertebrate
HSN Code Chapter 04: Eggs, honey, dairy products
HSN Code Chapter 05: Animal origin products
HSN Code Chapter 06: Plants, trees, roots, cut flowers
HSN Code Chapter 07: Edible vegetables, tubers and certain
roots
HSN Code Chapter 08: Edible fruit, nuts peel of citrus fruit or
melons
HSN Code Chapter 09: Tea, coffee, mate and spices
HSN Code Chapter 10: Cereals for GST documents
HSN Code Chapter 11: Milling industry products, malt, starches,
insulin, wheat, gluten
HSN Code Chapter 12: Medicinal plants, oil seeds, grains, fruits,
straw, fodder
HSN Code Chapter 13: Resins, lac gums, vegetable saps and
extracts
HSN Code Chapter 14: Vegetable products, plaiting materials
HSN Code Chapter 15: Fats of animal and vegetables, cleavage
products
HSN Code Chapter 16: Preparations of meat, fish, crustaceans,
molluscs
HSN Code Chapter 17: Sugar, sugar confectionery
HSN Code Chapter 18: Cocoa and cocoa preparations

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HSN Code Chapter 19: Preparations of flour, cereals, starch or
milk pastry cooks
HSN Code Chapter 20: Preparations of vegetables, fruits, nuts
or other parts of plants
HSN Code Chapter 21: Essences, sauce, yeast, soup, diabetic
foods etc.
HSN Code Chapter 22: Vinegar, spirit and beverages
HSN Code Chapter 23: Animal fodder preparations, waste from
food industries
HSN Code Chapter 24: Tobacco and tobacco products
HSN Code Chapter 25: Salt, lime, cement, plastering materials
HSN Code Chapter 26: Slag, ash and ores for GST documentation
HSN Code Chapter 27: Mineral waxes, bituminous substances,
mineral oils, mineral fuels
HSN Code Chapter 28: Inorganic chemicals, compounds of
precious
HSN Code Chapter 29: Organic chemicals
HSN Code Chapter 30: Pharmaceutical products
HSN Code Chapter 31: Fertilisers for GST
HSN Code Chapter 32: Paints, varnishes, putty, mastics, inks,
dyeing extracts
HSN Code Chapter 33: Cosmetics, toilet preparations,
perfumery, essential oils
HSN Code Chapter 34: Soap, washing preparations, lubricating
preparations, candles
HSN Code Chapter 35: Modified starches, glues, enzymes,
albuminoidal substances
HSN Code Chapter 36: Matches, pyrotechnic products,
phyrophoric alloys
HSN Code Chapter 37: Photographic goods, cinematographic
goods
HSN Code Chapter 38: Wood tar oils, preparations and charges
for fire-extinguishers etc.
HSN Code Chapter 39: Plastics and articles
HSN Code Chapter 40: Rubber and rubber articles
HSN Code Chapter 41: Leather, raw hides and skins
HSN Code Chapter 42: Articles of leather, saddlery, handbags,
articles of animal gut
HSN Code Chapter 43: Fur skins and articles of fur
HSN Code Chapter 44: Wood, wood charcoal and wood articles
HSN Code Chapter 45: Cork and articles of cork
HSN Code Chapter 46: Straw manufactures, basket ware and
wickerwork etc.
HSN Code Chapter 47: Wood pulp, fibrous cellulosic material,
waste and scrap paper etc.
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HSN Code Chapter 48: Paper, articles of paper pulp, paper
board
HSN Code Chapter 49: Printed books, newspapers, pictures
HSN Code Chapter 50: Silk
HSN Code Chapter 51: Wool, animal hair, horsehair yarn and
woven fabric
HSN Code Chapter 52: Cotton
HSN Code Chapter 53: Paper yarn, woven fabrics of paper,
other vegetable textile fibres
HSN Code Chapter 54: Man-made textile materials, filaments,
strips
HSN Code Chapter 55: Man-made staple fibres
HSN Code Chapter 56: Special yarns, twine, cordage, ropes, felt
and nonwovens, wadding
HSN Code Chapter 57: Carpets and other textile floor coverings
HSN Code Chapter 58: Special woven fabrics, tufted textile
fabrics, lace, embroidery
HSN Code Chapter 59: Coated, impregnated, laminated textile
fabrics, textile articles
HSN Code Chapter 60: Knitted fabrics and crocheted fabrics
HSN Code Chapter 61: Articles of apparel and clothing
accessories, knitted or crocheted
HSN Code Chapter 62: Articles of not knitted or crocheted
apparel and clothing
HSN Code Chapter 63: Made up textile articles, clothing and
worn textiles, sets
HSN Code Chapter 64: Footwear, gaiters and the like parts
HSN Code Chapter 65: Headgear and headgear parts
HSN Code Chapter 66: Umbrella, walking sticks, whips, seat
sticks
HSN Code Chapter 67: Prepared feathers and article made of
feathers
HSN Code Chapter 68: Mica, stone, cement, asbestos
HSN Code Chapter 69: Ceramic products
HSN Code Chapter 70: Glass and glassware
HSN Code Chapter 71: Pearls, stones, precious metals
HSN Code Chapter 72: Steel and iron
HSN Code Chapter 73: Steel articles and iron articles
HSN Code Chapter 74: Copper and copper articles
HSN Code Chapter 75: Nickel and nickel articles
HSN Code Chapter 76: Aluminium and aluminium articles
HSN Code Chapter 77: Reserved for future purpose
HSN Code Chapter 78: Lead and lead articles
HSN Code Chapter 79: Zinc and zinc articles
 BULMIM Journal of Management & Research (July-December 2018) 3(2): 39–45 45

HSN Code Chapter 80: Tin and tin articles HSN Code Chapter 90: Photographic, cinematographic, optical,
measuring, medical, surgical
HSN Code Chapter 81: GST for base metals, articles of base
metals, cermet HSN Code Chapter 91: Watches, clocks, watch parts, clock
parts
HSN Code Chapter 82: Spoons, forks, tools, implements of
base metal, base metal parts HSN Code Chapter 92: Musical instruments, parts and
accessories
HSN Code Chapter 83: Padlocks, base metal mountings, filing
cabinets, of base metal HSN Code Chapter 93: Parts of arms and ammunition,
accessories
HSN Code Chapter 84: Machinery, machinery parts, boilers,
mechanical appliances etc. HSN Code Chapter 94: Bedding, mattress, furniture, lamps etc.
HSN Code Chapter 85: Electrical machinery, machinery parts, HSN Code Chapter 95: Toys, sports and games accessories
TV, sound recorders
HSN Code Chapter 96: Carving materials, brooms, brushes,
HSN Code Chapter 86: Rolling stock parts, railway fixtures and buttons, crayons etc.
fittings etc.
HSN Code Chapter 97: Art work, antiques etc.
HSN Code Chapter 87: Vehicles other than railway, tramway
HSN Code Chapter 98: Laboratory chemicals, personal
rolling stock and parts
passenger baggage, project imports
HSN Code Chapter 88: Spacecraft and parts, aircraft and parts
HSN Code Chapter 99: For services
HSN Code Chapter 89: Boats, floating structures and ships
(source Clear Tax,2017, https://cleartax.in/s/gst-hsn-lookup)

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