Global import and export businesses include the movement of various products from one part of the world to the other. because all countries are engaged in this movement of products, regulating and checking them are very difficult tasks. Hence, global customs authorities rely on a coding system called Harmonized System (HS) codes. Developed and maintained by the World Customs Organization (WCO), the main aim of HS codes is to ensure smooth export-import trade between countries.
HS codes: Background
The Harmonized Commodity Description and Coding System, commonly called HS code, is an internally recognized method of identifying each product with a unique six-digit code and is used by over 200 countries worldwide. The use of HS code (or HSN code in India) mainly helps identify products. Almost 98% of the products being transported across the world follow this system.
HS code takes information from various products and helps importers and exporters in getting rid of any confusion in their processes. HS codes are useful in identifying goods, based on which internal and external taxes can be levied on the products. The use of wrong HS codes or moving goods without an HS code can cause wrong calculation of the duty to be charged on the products and possibly attract fines for not following trade norms. Without an HS code, identifying a shipment gets very difficult.
Features of HS codes
Key features of HS codes are as follows:
- HS codes have been created according to set rules of goods classification.
- Approximately 5000 goods across the world are identified using HS codes.
- HS codes are the global standard for goods identification.
Classification and Structure of HS Codes in India
Based on the rules set by WCO, every country can add some digits to their HS codes for further classification. For example, the United States uses a 10-digit HS code. The first six are common for each country. Additional numbers provided by the US customs are known as the Harmonized Tariff Schedule.
India follows an 8-digit HS code. Like above, the first six digits are common and the last two digits are added by Indian customs. HSN codes in India have been broadly divided into 21 sections and 99 chapters. In the 8-digit HSN code, each two-digit pair represents the name of the chapter, heading, subheading, and tariff item number, respectively.
Use of HS codes
The main uses of HS codes are as follows:
- To calculate the internal and external duties to be charged
- To calculate internal taxes and liabilities to be paid
Importance of HS codes
The importance of HS codes is listed below:
- Customs clearance
HS codes help in the correct sorting and arrangement of goods, which helps in timely clearance for customs.
- Avoids confusion
The use of HS codes helps remove all confusion, and both the importers and exporters have the correct information about the products being transported.
- Tariffs and taxes
HS codes help customs and other regulatory authorities to levy the correct tariffs and taxes.
Identification of HS codes for products
It is not difficult to find the right HS code for any product. The following steps can be followed to find the HS code for any product:
- Go to the website of the Directorate General of Foreign Trade
- Check the list from the Ministry of Commerce
- Open the relevant chapter
- Check the heading, subheading, and tariff item
- Select the correct HS code for the product
If a wrong HS code is being used, it can cause problems like delay in delivery, seizure of goods by customs, and non-compliance penalties. It can also lead to the denial of privileges upon imports.
HS codes and GST
HS codes are required for all export and import transactions. However, the rules are different according to the size of the business. These can be explained as follows:
- If the turnover of a business is less than INR 1.5 crore, no HS code is needed.
- If the turnover is from INR 1.5 crore to 5 crores, a 2-digit HS code can be used.
- If the total turnover is more than INR 5 crores, a 4-digit HS code is needed.
- An 8-digit HS code is required for all import-export transactions.
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