Goods and Services Tax (GST) is an indirect tax system launched by the government of India in July 2017 which includes most of the existing indirect taxes like Service Tax, VAT, etc. Currently, there are three types of GST namely, Central GST (CGST), State GST (SGST) and Integrated GST (IGST) . The products included under the GST scheme are categorized on the basis of the Harmonized System of Nomenclature (HSN) Code, about which we will learn in the later section.
Types of GST
CGST: The CGST is applied by the central government in India which replaces the service tax, excise duty, Special Additional Duty(SAD), Additional Duties of Excise (ADE), Countervailing Duty (CVD) and various other indirect taxes that were previously used. It is vital to remember that CGST is applicable on the goods within a state, while the tax revenue would only be delivered to the central government.
SGST: This tax is levied by the state government. SGST works to replace VAT, sales tax, entertainment tax, luxury tax, entry tax, purchase tax, Octroi and other taxes on lottery. This type of GST is applicable on goods within a state, while the tax revenue specifically gets delivered to the state government.
Do remember that both SGST and CGST would be levied only when the annual turnover is over INR 20 lakh. Moreover, these are applied on free supplies. Dealers are permitted to use the Composition Scheme for availing benefits when the turnover is INR 50 lakh.
IGST: This will be imposed by the state and central government both in harmony; but the collection will be managed by the central government. It is crucial to note that the revenue will be shared both by the state and central governments.
HSN was framed by the World Customs Organization (WCO) with the purpose to classify goods all around the world in a systematic method. The HSN comprises six-digit unvarying code which categorizes over 5,000 products accepted globally. This code is part of the GST scheme and is implemented across several nations which have adopted the GST tax law.
Such form of classification is utilized for taxation purposes in spotting the tax rate applicable on a product supplied across a country. GST HSN Code is further used to determine the substantial trading as well as export operations of an item throughout the nation.
The nation was already using the HSN system for its Central Customs and Excise regime; however, after the implementation of GST in India, the HSN Code is being used extensively. It is regarded as a detailed classification which includes two additional digits to the standard 6-digit structure. It is essential to mention the HSN code for the in the GST tax invoice.
|GST HSN Code Provisions|
ü The government has offered relaxation to small taxpayers who have an annual turnover of less than INR 1.50 crore in the previous financial year. Such tax payers aren’t required to state HSN code in their tax invoice.
ü Taxpayers with turnover exceeding INR 1.5 crore, but below INR 5 crore, are required to mention only two digits of the HSN code.
ü Taxpayers holding a turnover exceeding INR 5 crore are required to state four digits of the HSN code.
Exempted Goods under GST
The tax imposed on goods vary, ranging from 5%, 12%, 18% to 28% GST. However, there are certain goods which are exempted from the GST system. Apart from that, all products under GST are mentioned according to the HSN code. The presence of GST HSN code ensures that the invoicing operation of GST is in accordance with the global standards for product nomenclature. There is a proper list of exempted goods categorized into specific chapters. You can access this list online from any of the trusted websites containing information about India tax laws.
Benefits of HSN Code Adoption in India
- With the adoption of HSN classification, India will be considered on a par with the global standards in terms of international laws.
- It is expected that with this law, India will be accepted by other global competitors.
- The application will help government take economic decisions at a macro level, keeping in mind the expanding international trade.
- The usage of correct codes will simplify the trade, minimising any chance of error or misinterpretation of the product.