What Is the Role of HSN Codes in Export Business?
For exporters in India, navigating the complexities of international trade requires a good understanding of various tools, and HSN is among the most crucial of these tools. They help achieve seamless customs clearance and play a key role in determining the duties, taxes, and compliance.
As an exporter, you must be well-versed in standard export-related terminology to leverage government incentives and schemes. This helps ensure quicker customs clearance, avoid fines, meet all compliance needs, negotiate export payment terms, and accept international payments to India.
The HSN, or Harmonized System of Nomenclature, is a standardized international system for classifying goods in trade. It was created by the WCO or the World Customs Organization. The system, which is used by 200 countries, is critical for uniformity and seamless trade.
What does the HSN code consist of, and what does it represent?
Each Harmonized System of Nomenclature consists of a sequence of numbers. These numbers represent product categories or specific products. This makes it easier for businesses, traders, and customs authorities to identify and track globally traded goods.
Here’s what the structure of the HSN code represents:
1. Six-digit code: It is the global standard and is used for universal classification
2. Eight-digit code: Can be used by specific countries (India) to further classify for domestic purposes
3. First two digits: These represent the chapter of the product
4. Next two digits: These indicate the product’s heading
5. Final two digits: Indicate the sub-headings for finer classification
Why do we need HSN codes in exports?
The world of export consists of numerous steps and processes, and HSN codes help organize and standardize the goods being exported. Here’s a deeper look at why we need HSN codes in exports.
Provides uniformity and standardization at a global level
With the HSN codes, goods' classification is universal and the same across different countries. This, in turn, ensures that authorities can quickly identify the products being exported. The unique code for each product category helps with communications across all stakeholders, including businesspeople, customs authorities, and other officials.
Helps determine the export or import taxes and duties
Different duties and taxes apply to various goods, depending on the country. Additionally, there are factors like tariffs on export or import, value-added tax, and other taxes specific to each product category. HSN makes all this easy. Exporters use HSN codes to get the proper tax benefits and avoid overpayment.
Simplifies customs clearance and documentation
Customs documentation can take time and become complicated. However, using HSN codes simplifies the process and speeds up the creation of export-related documents like shipping bills, invoices, and customs declarations. Customs authorities at the exporting and importing locations leverage HSN codes to check the products to ensure they meet regulations and correctly calculate applicable duties.
Facilitates trade and regulatory compliance
HSN codes form the basis for government regulations and policies related to trading across borders. This helps exporters meet area-specific quality standards, trade restrictions, and other compliance-related requirements. HSN codes also help identify particular products that could require special licenses, enabling exporters to complete the paperwork on time.
Helps with GST application for Indian exports
Under the GST laws, classification as per HSN is crucial to calculating the right tax rate, availing tax benefits where applicable, calculating and disbursing duty drawbacks, and claiming GST-related refunds for exports.
Forms the basis for market research and data analysis
With HSN codes, exporters and government agencies can analyze international market trends and plan better to improve trade. Tracking based on HSN codes makes it easy to look at potential product categories and markets with high demand and analyze global pricing trends.
● Also Read: Export payment terms for exporters
HSN codes are foundational elements of the export business and help you as an exporter with taxation, compliance, customs clearance, and market analysis. Your knowledge of HSN codes brings efficiency to exports and can lead to better trade outcomes. However, when it comes to inward remittance in a transparent, innovative, quick, and secure manner, LeRemitt has you covered. Want to learn how? Click here to connect with us!
