Harmonised Systems (HS) - HS code guide

International Trade is termed as the trade taking place between 2 or more nations in the world in exchange of various goods and services. We must analyse and understand the need for the trade the nature of buying and selling of the products from various nations.

The concept of free trade also comes up as it is the process of selling the products between the nations without the use of any fees, duties, quotas, tariffs, and the trade restrictions. The concept of Laissez Faire meaning “Leave Us Alone” enters the stage in the current scenario.

Most of us believe that free trade will hurt the developed nations like USA, UK, Germany, France, Australia, Canada and other nations compared to the developing and under developed nations.

If you look at the broader picture the Harmonised Systems and the International Trade goes hand in hand and let us analyse the concept of the “Harmonised Systems”.

If you look at the world scenario, millions of good and services are exported and imported like the Spices, Apparel, Gems, Hardware components, Jewellery, Electrical and Electronic components, Petroleum Products, Cement, Bricks, Steel and Iron and others. A uniform exchange and trade systems will play a vital role in getting rid of complications.

What Are Harmonised Systems?

Harmonised Systems is a set of standardised numerical and theoretical methods available to analyse and classify the products meant for imports and exports by the custom authorities of nations around the world to ease the trade.

  1. It is a vital code created developed and maintained by the World Customs Organisation (WCO) in India and currently used by Excise, Customs and the Value Added Tax (VAT) Rules and Regulations.
  2. It was launched in the year 1988 and maintained by the World Customs Organisation (WCO).
  3. It is known as the Tariff Nomenclature (Tariff Terminology)involvingvarious names and numbers to classify traded products.
  4. World Customs Organisation is an organisation based in Brussels, Belgium with over 250 member nations.
  5. It consists of 5300 HS Codes and are broken down into various headings and the subheadings.
  6. More than 98% of the trade activity going in the world is brought under the Harmonised Systems.
  7. There are various terminologies of each product and this has a unique 6-digit code defined by various laws in order to have uniformity around the world.
  8. This coding encourages the importer and exporter to avoid any restrictions during the exchange of goods.

Structure Of the Harmonised Systems Code

There are certain structural components of the Harmonised Systems Code given below as follows:

  1. The Harmonised Systems Code is divided into 99 Chapters grouped in 21 sections.
  2. They are further divided into the 1244 Headings and 5224 subheadings.
  3. The Harmonised Systems Code is organised in a logical manner based on the economic activity or the component materials.
  4. The vast categories of products are described by Section and the Chapters.
  5. Heading and Subheadings under the Chapter will describe the products in detail.
  6. The chapters are arranged logically in terms of the nature of the product and technical specifications.
  7. The basic products are given importance in the earlier sections and the advanced products are given prominence in the later sections.
  8. The HS code will contain 6 digits and their division is given below as follows:
    1. 1st two digits----HS Chapter
    2. 2nd two digits---HS Headings
    3. 3rd two digits---HS Subheadings
  9. Each and every section of the Harmonised Systems Code will contain legal notes giving particulars about the classification of the products.
  10. Nations around the world must add longer codes to first six digits.
  11. The Harmonised Systems Code is used by the Custom authorities, Statistical agencies and other regulatory establishments sanctioned by the Government of India.

Importance of the Harmonised Systems

This helps in methodical classification of products, and used to gather data and solve problems.

  1. It exists for each product in every nation, and the number will be assigned for all the products.
  2. It helps in creating the rules of origin of a product of a nation to decide on quotas, tariffs and other trade remedies.
  3. This scheme is ideal for creating International Trade Statistics and making new trading law and policies.
  4. This helps in collection of the global trade statistics and analyse them.
  5. This helps in understanding the various aspects of trade negotiations.
  6. This helps in dealing with the Risk Mitigation and Assessment.
  7. This is used by the Government of various states in India, Quasi and Private sector organisations for various activities like the Trade, Tax, and Monitoring Controlled Products.
  8. It is also good in knowing about the Tariffs like the Custom Tariffs, Freight Tariffs, Transport, Price controls, and doing economic research and analysis in a systematic manner.

Harmonised System (HSN Code) in India

Ever since India has become the member of the World Trade Organisation (WTO) on 1st January 1995has already started following the Harmonised Systems Code for doing the classification of the products for the Customs and the Central Excise. It is termed as Universal Economic Language.

The Harmonised System Code is a worldwide terminology established for classifying products in India and offers various standards to classify the products uniformly for taxation, and another economic research.

If you look at the international level, the Harmonised System Code is the 6-digit code systems, and in India it is containing 10 or 12 digits with a motive to cover more products in the coming years. Under the domain of the Central Excise Tariff, you will be surprised that only 20 sections are used and the final one dealing with Antiques and Art Works is not important for the Central Excise or for GST. HSN codes for GST is implemented since July 2017.

Let us categorise the Harmonised System Code and the classification digit technology in India can be divided like:

  1. First 2 digits will identify the chapter the goods are classified.
  2. Next 2 digits will identity the groups within that chapter.
  3. The next 2 digits under the HSC will deal with specific items Or the Subgroups.
  4. Last 2 digits deals with the specific product.

For example:If you take the number 07031010 means that it is 07 is thechapter, 03 means Headings and 10 means the Sub headings and other 10 means the concerned product like Chilled Onions.

Hence one can say that in the first 2 digits are specifying the type of commodities and the next digits levels are specifying the products under that groups. During the six digits the group gets narrowed down to a particular commodity.

The next 2 group dealing with 8 digits deals with a unique identify of a commodity Harmonised System Code.The Harmonised System Code has gone through various revisions and modified in 1996, 2002, 2007 and 2012.

The Harmonised System Code offers a unique frame work for identifying products, this is used for creating various tax based and commercial rules under the Tax management schemes brought by the Government of India.

Harmonised Systems in The World

The Harmonised System Codeis the major international product terminology created by the World Customs Organisation (WCO). It is used in more than 200 nations and helps in harmonising the trade procedures and reducing the bottlenecks arising out of international trade and commercial activities around the globe.

The fact of the matter is around 70 nations along with more than 30 national and international institutions participated in various conferences of the Harmonised System Code and its working committees, is the yardstick to showcase the vast interest generated by this project.

Non-Governmental Organisations that are supporting Harmonised System Code is:

  1. United Nations Statistical Office
  2. International Chamber of Shipping 
  3. International Chamber of Commerce
  4. General Agreement on Trade and Tariff
  5. International Organisation for Standardisation
  6. United Nations Conference on Trade& Development


Are the HS codes numbered consecutively?

The Heading and Subheading are numbered consecutively by WCO.

How to see the details of the latest decision taken by the HS codes Committee?

You must go to the Article 7 of the HS Convention.

When the HS Code are amended?

The HS Codes are amended every 5 years.

Which agency controls the HS Codes?

World Customs Organisation (WCO) controls the activities regarding the HS Codes.

 How to make the changes in the Harmonised Systems Codes?

You can make the changes to the Harmonised Systems Codes by bringing to the notice of any inter-governmental establishment and they will ask the WCO-World Customs Organisation to make all changes.

 Is there any way WCO can speed up the process of the working of the Harmonised System Codes?

An excellent question. The policies and procedures are brought after extensive consultations with the Economists, Finance Ministers, Experts and other Committees. We are working on that direction.

Do you encourage the entry of Private Enterprises or Business tycoons into the HSC?

Well, we will not entertain Business Tycoons like Ratan Tata or Elon Musk nor private enterprises like Tesla or Tata. However, the WCO will be extremely pleased to welcome the representatives of the International Organisation as the observers.

When the Tax payers under the GST in India need to furnish the HSC in their invoices?

In India, HSN Codes must be mentioned in Invoice. For different turnover different numbers of HSN codes are required. Businesses with turnover above Rs. 5 crore must use 6-digit HSN code for all invoices. Turnover less than or equal to Rs. 5 crore must use 4-digit HSN code for all the B2B invoices.