Definition
HSN Code
The HSN code is an internationally standardised system of numbers used to classify goods, adopted under GST to determine the applicable tax rate.
The Harmonised System of Nomenclature (HSN) assigns a multi-digit code to every category of goods, and GST uses it to map products to the correct GST slab. A parallel system, SAC, classifies services. Businesses must mention the appropriate HSN code on invoices, with more digits required as turnover rises.
Correct HSN classification matters because it directly drives the tax rate; misclassification can lead to short payment or excess collection and consequent disputes. The system also aligns Indian trade data with global customs classifications, aiding customs duty administration.
Related terms
- GST SlabsGST slabs are the multiple tax-rate categories under GST into which goods and services are classified, ranging from nil-rated essentials to higher rates on luxury and sin goods.
- Customs DutyCustoms duty is the tax levied on goods imported into, or in some cases exported from, India, administered under the Customs Act.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.