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What is HSN Code in Invoice? The Importance of HSN Code

by | Jun 22, 2021

What is HSN code

The sprawling nexus of trade worldwide involving umpteen products, services, manufacturers, traders, and service providers can get chaotic and out of hand if there’s no standardised system of classification. This is what necessitates a nomenclature system like the HSN code.

What is HSN Code?

HSN is the acronym for Harmonised System Nomenclature. This standardised, multipurpose goods and services nomenclature came into practice in 1988 as an initiative taken by the World Customs Organisation (WCO) for facilitating the classification of products worldwide in a systematic fashion. This code is mandatory for B2B and B2C tax invoices of all goods and services.

This multipurpose product nomenclature system is accepted worldwide for systematic classification and organisation of products and services. This standard invoice numbering system is accepted worldwide to keep track of:

  • What is being traded?
  • How much is being traded?
  • What kind of monetary transaction is involved?
  • How should the transaction be taxed?

Apart from helping gauge the taxation of traded goods, the HSN code also helps keep track of import-export business transactions. The HSN code helps track all the items imported from or exported to a country, the quantity of the products and the billing involved. Thus, it makes taxation easier and helps ascertain the tax applicable on specific goods as per the laws of a particular country. It also helps calculate benefit claims.

How to Find the HSN Code with Example

Each commodity has a separate, exclusive HSN code which is formulated in easy steps. An HSN code contains:

  • 21 sections
  • 99 chapters
  • 1244 headings
  • 5244 subheadings

Each section is divided into chapters, each chapter into headings and each heading is further classified into subheadings. Section and chapter describe the broad categorisation of the products, while headings and subheadings get into a more detailed description.

For example, handkerchiefs made of textile materials have the code 62.13.90, where 62 is the chapter (non-knitted, non-crocheted clothing/ apparels accessories), 13 is the heading number for the product (handkerchief), and 90 is the subheading/ product code for handkerchiefs made of other textile materials.

Note: In India, there is a deeper classification for handkerchiefs based material of manufacture

  • 62.13.90.10 (handkerchief made of man-made fibre)
  • 62.13.90.90 (handkerchief made of silk or silk waste)

Importance of HSN Code:

India has been a member of the WCO since 1971; India, along with the other 200+ participating nations, have adopted this 6-digit numbering system for the following benefits:

  • Systematic classification of products and services
  • For the provision of a rational basis of custom tariff
  • Keeping track of data analytics of international trade
  • Smooth taxation process
  • Controlling tax evasion practices

Latest Government Regulations

India has been using HSN codes since 1986 to classify goods for excise and customs. But with the latest declaration from the Ministry of Finance mandating HSN code on B2B and B2C business invoices from 1st April 2021, the numbering system is sure to get more standardised and uniform. According to the Ministry of Finance, “With effect from the 1st April 2021, GST taxpayers will have to furnish HSN (Harmonised System of Nomenclature Code), or Service Accounting Code (SAC) in their invoices, as per the revised requirements”.

The recent government regulations have revised the existing HSN numbering practices for small and large businesses. As per the mandate, businesses with aggregate turnover up to 5 crores INR in a financial year are now required to furnish 4-digit HSN codes instead of the previously practised 2-digit code system; this code is mandatory for B2B and optional for B2C businesses in this description.

Large businesses with an aggregate turnover above 5 crores in a financial year are required to issue a 6-digit HSN code instead of the previously practised 4-digit one. This code is mandatory for both B2B and B2C businesses in this bracket.

Small businesses with a turnover less than or equal to 1.5 crore INR in a financial year are exempted from using the HSN code.

HSN code in invoice

Mandating HSN codes in the GST invoices is a welcome move for streamlining business practices; however, it involves some procedural difficulties which can be easily overcome by integrating the coding system in your invoicing technology. Let’s see how an invoicing app like Imprezz can make a difference in this domain.

About Imprezz

Imprezz is a state-of-the-art fintech service that helps small and large businesses and self-employed professionals to create and manage their invoices, quotes, financial transactions and payment reminders in the cloud with minimum hassle. 

Gone are the days when a substantial amount of investment went into book-keeping and financial management. A Digital financial management platform like Imprezz takes care of your book-keeping requirements efficiently and offers several benefits like:

  • Saving the expenses of the workforce engaged in financial management and accounting
  • Minimising the risk of manual error
  • Keeping your financial records secure
  • Making financial details accessible from any part of the world

If you are an Indian business person looking for a one-stop solution to your financial management needs, Imprezz has you covered with services like:

  • Accounting
  • Expenditure management
  • Data Security
  • Real-time tracking of transactions
  • Partial invoices
  • Import articles

Easy HSN Code Invoicing with Imprezz

Imprezz’s invoicing program helps you write a professional and legally compliant invoice efficiently and effectively. All you have to do is start with a neutral invoice template and add all the necessary information, like the company’s logo and your address, in the stationery sender section and save it. 

Enter the name and address of the client/ company and feed all the necessary details of goods/ services, their quantity and pricing details in the settings tab. Enter your GST details with HSN codes and your job is done.

Add company data and signature in the footer section and save. Your professional invoice is ready to roll.

Your invoices are directly sent to your customers via mail if you add their email details to the system. Do not forget to preview before clicking ‘finish’ to complete the procedure.

By bringing all your book-keeping needs under the same umbrella, Imprezz offers better efficiency and more secure management of your finances in just about a few clicks.

Also Read:

Importance of Real-Time tracking in Accounting Transactions

Why and How to prepare General Ledger?

How to Leverage Accounting Automation? – Small Business Guide

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