HSN (Harmonised System of Nomenclature) is an internationally accepted product coding system formulated under General Agreement on Tariffs and Trade (GATT).
In India, currently, adapted HSN coding is currently used under Excise and Customs for classification of products. It is necessary to determine correct applicable rate (including exemptions, if any).
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Under GST, government shall continue the concept of classification based on HSN but a slightly modified version will be implemented wherein turnover of the taxpayers will play a pivotal role in determine coding. However, there will be separate codes for goods and services.
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Broad rule is as under:
– Taxpayers whose turnover is above Rs. 1.5 crores but below Rs. 5 crores shall use 2 digit code;
– Taxpayers whose turnover is Rs. 5 crores and above shall use 4 digit code;and
– Taxpayers whose turnover is below Rs. 1.5 crores are not required to mention HSN Code in their invoices.
Services will be required to be classified per the Services Accounting Code (SAC)