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How does HSN code work?

It has about 5,000 commodity groups, each identified by a six-digit code, arranged in a legal and logical structure. It is supported by well-defined rules to achieve uniform classification.Why is HSN important?The main purpose of HSN is to classify goods from all over the World in a systematic and logical manner. This brings in a uniform classification of goods and facilitates international trade.HSN WorldwideThe HSN system is used by more than 200 countries and economies for reasons such as:Uniform classificationBase for their Customs tariffsCollection of international trade statisticsOver 98% of the merchandise in international trade is classified in terms of the HSN.Harmonized System of Nomenclature number for each commodity is accepted by most of the countries. The HSN number remains same for almost all goods. However, HSN number used in some of the countries varies little, based on the nature of goods classified.HSN in IndiaIndia is a member of World Customs Organization(WCO) since 1971. It was originally using 6-digit HSN codes to classify commodities for Customs and Central Excise. Later Customs and Central Excise added two more digits to make the codes more precise, resulting in an 8 digit classification.Understanding the HSN CodeThe HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 subheadings.Each Section is divided into Chapters. Each Chapter is divided into Headings. Each Heading is divided into Sub Headings.Section and Chapter titles describe broad categories of goods, while headings and subheadings describe products in detail.For example:Handkerchiefs made of Textile matters 62.13.90First two digits (62) represent the chapter number for Articles of apparel and clothing accessories, not knitted or crocheted.Next two digits (13) represent the heading number for handkerchiefs.Finally, last two digits (90) is the product code for handkerchiefs made of other textile materials.India has 2 more digits for a deeper classification.If the handkerchiefs are made from a man-made fibre, then the HSN code is 62.13.90.10.If the handkerchiefs are made from silk or waste from silk., then the HSN code is 62.13.90.90.Services Accounting Code (SAC) in GSTLike goods, services are also classified uniformly for recognition, measurement and taxation. Codes for services are called Services Accounting Code or SAC.For example:Legal documentation and certification services concerning patents, copyrights and other intellectual property rights-- 998213The first two digits are same for all services i.e. 99The next two digits (82) represent the major nature of service, in this case, legal servicesThe last two digits (13) represent detailed nature of service, i.e., legal documentation for patents etc.