The harmonised commodity description and coding system which generally refers to harmonised systems of nomenclature have about 5,000 commodity groups. All the products are arranged in a legal and logical structure. Each of these 5,000 groups is identified by a six-digit code. To achieve a uniform and well-balanced classification, the HSN code if supported by well-defined rules and regulation. To top it all off, the rules or regulations have attained worldwide acceptance.
HSN code was developed and widely classified for taxation purposes. It helps in the identification of the rate of tax applicable to a specific product in a country that is under review. Apart from that, it can also be used in the calculations involved in claiming benefits.
Anyway, the HSN Code applies to imports and exports. The major use of HSN code in trading practices is to aid in determining the quantity of all the commodities traded through a nation.
In a sentence, the importance of HSN code can be described as a classification of goods from all over the world logically and systematically. It brings in uniformity in the proper distribution and classification of goods and facilitation of international trade.
As mentioned, the primary purpose of the HSN code is the systematic classification of goods. HSN code is also used for gathering data and solving problems. Without HSN code the task of obtaining and determining data would be a difficult task. The HSN code final result would be to make the international trade system more efficient.
HSN code is universal, therefore, it is accepted worldwide. There have been 200+ countries participated through HSN code. The reason behind the impressive adoption rates of HSN codes are majorly its benefits:
In an around 98% of the merchandise in international trade is classified in terms of the HSN.
Since it is widely accepted around the globe, therefore, the HSN code exits for each commodity for its classification and distribution. The numbers remain the same for almost all goods. Although the client may experience a variable in some countries since their HSN code is completely based on the nature of the items classified.
Any HSN code contains:
Considering the structure of the HSN code, it has 21 groups and the groups are further classified into 99 different chapters. The 99 classified chapters are divided into 1244 number of headings. Then those 1244 headings are further implemented into 5224 sub-headings. Section and chapters titles describe a broad category of goods, while headings and sub-headings illustrate products in detail.
The major role of the HSN code is to systematise and provide global acceptance to GST. With the help of the GST HSN code, the client would not have to upload or provide a full description of the goods as it can be achieved with the help of the HSN code. This way the client may save some time and along with that, it will make it easier to file GST and automate the returns.
For better and further illustration, the client would like to approach a freight forwarder or manage the market place for an effective practice without disruption.