GST Tax in India and Why Rate Finder is needed?

Goods and Services Tax is the value-added tax levied on almost all Goods sold for domestic consumption as well as services we use within the country. It is a single tax structure removing all the previous central as well as state taxes. Goods and Services Tax is essentially paid by the customers who avail the service or the goods they buy, but it is remitted to the government by businesses houses, as well as companies.

Goods and Services Tax is the outcome after merging all the central taxes (Excise duty, sales tax, service tax, surcharges, and cesses) and state taxes (State VAT/ sales tax, Purchase tax, Luxury tax, entertainment tax, sin tax, etc.) as well as made into a single tax under the slogan “One Nation, One Tax”.

What are Goods and Services Tax Rates?

Goods and Services Tax is one of the major reforms in the taxation sector in India. Goods and Services Tax helped in bringing uniformity in the taxation of various commodities as well as services used in India. It also contributed to eliminating the cascading effect of various taxes levied by the state as well as central government.

Goods and Services Tax is the single taxation, but due to the vast number of commodities and services, they are placed under different Goods and Services Tax slabs or different Goods and Services Tax rates.

The Goods and Services Tax rates are fixed under 5 slabs,

  • NIL: Under this tax slab 0% tax is levied on the Goods or services we use.
  • 5 %: Under this tax slab 5% tax is levied on the Goods and services we use.
  • 12%: Under this tax slab 12% tax is levied on the Goods and services we use.
  • 18%: Under this tax slab 18% tax is levied on the Goods and services we use
  • 28%: Under this tax slab 28% tax is levied on the Goods and services we use.

NOTE: Gold and other precious metals are exempted as well as placed under a 3% slab.

To date 34 Goods and Services Tax council meetings were held, many Goods have been shifted from one slab to another. Some of the tax rates are decreased from 28% to 18% as well as some of the Goods tax rates are shifted to 5% from NIL.

What is an HSN code?

Harmonized System of Nomenclature was established by the World Customs Organisation (WCO). WCO’s main objective for introducing HSN codes is to categorize all the Goods systematically. It clears the confusion as well as helps in domestic and international trade between the countries. More than 20,000 Goods are traded using Harmonized System of Nomenclature codes across the world between the countries. More than 90% of world trade is done World Custom Organization using the revised Harmonized System of Nomenclature codes. India is also included in the community by accepting the Harmonized System of Nomenclature codes procedure.

Why is HSN important under Goods and Services Tax?

For years other countries are using Harmonized System of Nomenclature codes for trade. After the introduction of Goods and Services Tax in our country, Harmonized System of Nomenclature and imports and exports standardize Codes as accepted in the global platform have been adopted.

The use of HSN codes minimizes the cost and simplifies the customs procedure.

The HSN codes help all the taxpayers, to know about Goods and Services Tax rates against a particular product. It is mandatory to mention the HSN codes while filling the GST forms.

How does HSN code work?

The use of HSN codes is mainly for dealers and trades. They must adopt 2 digits, 4 digits, and 8 digits Harmonized System of Nomenclature codes depending upon the following criteria.

  • If the business income is lower than Rs.1.5 crores then there is no requirement of adopting the HSN codes.
  • If the business revenue is between Rs.1.5 Crs to Rs. 5 Crs then, they must adopt 2-digit Harmonized System of Nomenclature codes for the business trades.
  • If the business turnover is above Rs.5 Crs then, they must adopt a 4-digit Harmonized System of Nomenclature codes for the business.
  • In the case of Import and export dealings and international trades, one must adopt 8-digit HSN codes for the business trades.

Under the Harmonized System of Nomenclature module, the classification of the Goods into different

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

Amendments in the HSN system

233 amendments were made in Harmonized System of Nomenclature codes which shall be followed by each country for the customs declaration for the exported or imported Goods. These amendments include:

  • The Agricultural sector (85)
  • The Chemical sector (45)
  • The Wood sector (13)
  • The textile sector (15)
  • The base metal sector (6)
  • The machinery sector (25)
  • The transport sector (18)
  • Other miscellaneous sectors (26)

Purpose of adopting HSN code in India

After the introduction of Goods and Services Tax, the enactment of the HSN code in India is bringing the country at par with the other countries which has been following HSN for years. HSN code was adopted by India to make Goods and Services Tax standardized and worldwide accepted. This has also minimized the cost that is related to international trade as it will bring harmonization in trade and customs procedures.

The HSN will help every taxpayer in India to search the Goods and Services Tax rate by just entering the HSN code after that the system will automatically show the tax rate applicable on the commodity under the Goods and Services Tax, hence abridging and simplifying the trade-related procedures in India. That is why it is mandatory to mention the correct HSN codes during the GST Return filing under Goods and Services Tax. These are the reasons why India adopted the Harmonized System of Nomenclature system.

Structure of Harmonized System of Nomenclature code

HSN code is a six-digit number for Goods. This six-digit number includes 2 number each for:

  • Chapter: Under the Harmonized System of Nomenclature module there are 99 chapters.
  • Heading: Below these chapters, there are 1244 headings.
  • Subheading: There are 5224 subheadings below these headings.
  • Regional Tariff*
  • National Tariff*

The first six digits of the Harmonized System of Nomenclature code cannot be altered as per the guidelines of World Customs O but the last four digits which include Regional tariff and National tariff can be changed by the organization the customs authority. This HSN code assisted the government to implement GST on Goods and services flawlessly as the HSN system was already accepted by India under Central Excise and Customs regime.

Application of HSN code in India

There are certain criteria on which the Harmonized System of Nomenclature depends on. They are mentioned below:

  • No Harmonized System of Nomenclature code is required to trades having revenue less than 1.5 crore INR Any company whose revenue is more than 1.5 crore INR but less than 5 crores INR shall apply a 2-digit Harmonized System of Nomenclature code.
  • digit Harmonized System of Nomenclature code is obligatory in the case any business has a turnover of more than 5 crores INR.
  • Any business that is into export and import, irrespective of turnover shall use an 8-digit Harmonized System of Nomenclature code.

What If the Harmonized System of Nomenclature Code You Have Used Is Wrong?

As an exporter, if you have used an incorrect HSN Code then it can lead to problems with your shipment during customs inspection. There can be issues like a disavowal of import privileges, heavy custom duty charges, non-compliance penalties, etc.

In Goods and Services Tax, if you have used an incorrect HSN Code then the buyer will not be able to claim his input tax credit. As per Section 31, an invoice is supposed to be complete in all aspects including correct Harmonized System of Nomenclature cataloging for claiming the input tax credit.

What is SAC?

Service Accounting Code (SAC) is an exclusive code that is identical to the International Harmonized System of Nomenclature codes in many ways. Service Accounting Code is allotted by the Central Board of Indirect Tax to categorize each service to classify the applicable rate of tax on the respective services. These Service Accounting Codes are used at the time of generating invoices for the services rendered.

Format of SAC

The Service Accounting Codes code is a unique 6-digit number that contains two number each for

  • Chapter
  • Heading
  • Sub-heading

Let us comprehend this with an example, the Service Accounting Codes code for General construction services of mines as well as industrial plants is 995425 that consists

  • 99 is the code that represents the Chapter as well as remains constant throughout
  • 54 stands for civil engineering works (Heading)
  • 25 is for general construction services for plants as well as mines (Sub-heading)

Goods and Services Tax Harmonized System of Nomenclature Finder – Steps to Search Harmonized System of Nomenclature / Service Accounting Code Tax Rates

Follow the steps outlined below to find the Harmonized System of Nomenclature codes for Goods and Services Tax:

  • Visit the Goods and Services Tax portal home page – services. Goods and Services Tax.gov.in/services/login and enter the login details such as Username and Password.
  • Click on Services > User Services > Search Harmonized System of Nomenclature / Service Accounting Code.
  • Click on the HSN checkbox.
  • Select the type of tax you are searching for in the type of tax drop-down list.
  • Then, enter the Harmonized System of Nomenclature code or name of the chapter whose rates you are looking for under the “Search Harmonized System of Nomenclature Chapter by Name or Code.”
  • Additionally, enter the Harmonized System of Nomenclature code of the Goods whose tax rates you are looking for under the “Search Harmonized System of Nomenclature Code” category.
  • Select the suitable dates in the “Effective Period” category from the calendar.
  • After the details are filled in, click on the “Search” option.
  • In case you choose Goods and Services Tax from the Tax Type list, you also need to select the State for which you want to check the tax rate.

In the case of Service Accounting Code codes, follow the steps mentioned below:

  • Click on the Service Accounting Code checkbox.
  • Select the type of tax you are searching for in the Tax-Type drop-down list.
  • Select the type of tax you are searching for in the Tax-Type drop-down list.
  • Besides, enter the Service Classification Code (SAC) whose rates you are looking for under the “Service by Name or Code.”
  • Additionally, select the suitable dates in the “Effective Period” category from the calendar.
  • Finally, click on the “Search” option and the details will be displayed on the screen.

Difference between SAC and HSN code

S. N0ParametersHSNSAC
1Full-FormHarmonized System of NomenclatureServices Accounting Code
2Used ForHSN helps in the identification of Goods and Services Tax Rates applicable to Goods.SAC is used in identifying the Goods and Services Tax rates applicable to services.
3Structure8 Digit Code6 Digit Code

Why is it necessary to follow the Harmonized System of Nomenclature code?

Harmonized System of Nomenclature code provides standardization and global acceptance of the Goods. Under the Goods and Services Tax regime, it is mandatory for all the businesses on which the HSN system is applicable to get the Harmonized System of Nomenclature code to levy the appropriate rate of taxes on them set by the concerned authorities in India.

If all the business has to get the Harmonized System of Nomenclature code or not?

No, HSN codes do not apply to all industries. These industries include

  • Any business whose turnover is not more than 1.5 crore INR.
  • Any business which is registered under the Goods and Services Tax composition scheme.

Is a Harmonized System of Nomenclature code is required while Goods and Services Tax Return filing?

Yes, as it will be difficult for the business to enter every detail of the dealer. Businesses can opt for Harmonized System of Nomenclature code which will help to save more time. But businesses shall carefully choose the Harmonized System of Nomenclature code while filing the details in the GST Return.

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