HSN (Harmonised System of Nomenclature) codes are six-digit identification codes used to categorise goods in international trade.
HSN codes (sometimes referred to as HS codes) were introduced by the World Customs Organisation (WCO) in 1988 and are now used to classify over 98% of goods shipped worldwide. Over 200 countries currently utilise the HSN code classification system.
HSN codes provide goods and commodities with a unique classification ID to show customs authorities exactly what is being shipped. This globally-recognised coding system makes it easier to identify goods and apply the appropriate fees and taxes in the importing country.
Universal HSN codes are designed to improve speed and efficiency when it comes to exporting and importing goods worldwide.
The correct HSN code is necessary for legal and commercial documents issued by Exporters and Importers. Almost every nation requires HSN codes on trade documents such as bills of lading and letters of credit.
The unique six-digit code classifies an item by its category and product type.
Understanding HSN trading codes can seem complex at first. But to make it easier you can break the six digits into three sets of two-digit combinations.
Firstly, it’s important to understand some WCO terms related how god are categorised:
Any six-digit HSN code combination tells the customs authority the chapter, heading and subheading of any WCO-listed product.
Here is an example of the HS code for brown rice.
Section II - Vegetable Products
Chapter 10 - Cereals
Heading 06 - Rice
Sub-heading 20 - Husked (brown) rice
Therefore, the HSN code for brown rice would be (100620).
There are a few minor exceptions to the standard six-digit HS code rule.
For example, India - the first nation to adopt the classification system - uses an eight-digit model, with an additional two digits added for greater accuracy during customs checks.
The USA adopts a 10-digit HS code model for even more specific product classifications.
However, the first six digits will still consist of the universally-accepted HS code.
HSN codes are designed to classify goods for customs tariffs and taxation purposes. Therefore, Exporters must apply the correct code for each product to avoid complications such as:
Therefore, companies should ensure that they avoid any errors by placing the correct, up-to-date HSN code on all shipping documents. If you’re an Exporter regularly shipping specific goods, keeping a record of the code(s) you need lowers the risk of errors when producing new shipping documents.
It’s also recommended to stay up-to-date with news from the WCO because they review the classification system every few years. This could include changes to the HS code system and structure.
The global HSN code for any product can be found online. The Indian government’s GST website offers a search function into which users can enter a description of their items to find the correct code.
The WCO HS webpage also lists all HS code sections, chapters, headings and sub-headings.
Similar to HSN codes, Services Accounting Codes (SAC) provide a classification function but for services instead of goods. SAC codes also consist of six digits which classify specific services and categories.
Below is an example of the SAC code for web development services:
Chapter 99 - Business services
Heading 83 - Other professional, technical and business services
Sub-heading 14 - Information technology (IT) design and development services
The WCO updates the HSN code system every few years to adapt to the evolving needs of global supply chains.
In January 2022, the WCO posted its 7th edition of the Harmonised System.
Hopefully the above information has answered your questions about HSN codes and their uses. It’s clear to see how important they are in international trade.
Stenn recommends that you check whether the code you use on your shipping documentation is correct and up-to-date.
About the Authors
This article is authored by the Stenn research team and is part of our educational series.
Stenn is the largest and fastest-growing online platform for financing small and medium-sized businesses engaged in international trade. It is based in London, provides financing services in 74 countries and is backed by financial giants like HSBC, Barclays, Natixis and many others.
Stenn provides liquid cash to SMEs within the global financial system. On stenn.com you can apply online for financing and trade credit protection from $10 000 to $10 million (USD). Only two documents are required. No collateral is needed and funds are transferred within 48 hours of approval.
Check the financing limit available on your deal or go straight to Stenn’s easy online application form.
© Stenn International Ltd. All rights reserved. Any redistribution or reproduction of part or all of the contents in any form is prohibited other than the following:
Disclaimer: The above article has been prepared on the basis of Stenn’s understanding of the subject. It is for information only and doesn’t constitute advice or recommendation. Whilst every care has been taken in preparing this article, we cannot guarantee that inaccuracies will not occur. Stenn International Ltd. will not be held responsible for any loss, damage or inconvenience caused as a result of anything published above. All those applying for credit should seek professional advice when doing so.