What is a Vehicle Insurance HSN Code & How to Find it?

When you opt for vehicle insurance, the HSN code is a significant aspect of vehicle insurance. It helps to simplify tax compliance and ensures that there is proper categorisation for insurance-related transactions. 

HSN is especially crucial in car insurance, as taxation and documentation directly relate to a vehicle, assuring automobile insurance companies. This article will decode vehicle insurance HSN Codes and steps to locate them.

HSN (Harmonised System of Nomenclature) is the name for the internationally recognised classification of goods and services. It is a globally accepted systematic classification of all goods and services for taxation purposes. The HSN Code is a systematic categorisation developed under the auspices of the World Customs Organisation (WCO). 

This is a six-digit code that represents a specific category, sub-category, and details about a particular product or service. In India's GST system, HSN codes play the most crucial role. For example, vehicle insurance services come under the HSN Code 997134. This ensures uniform and accurate tax calculation, thereby avoiding errors.

HSN codes bring massive benefits to the processes of obtaining vehicle insurance. Here's why it is essential:

• Tax Compliance: HSN codes are used to ensure accurate tax payments by identifying the correct GST rate.

• International recognition: Being a globally accepted system, HSN codes facilitate global trade and cross-border insurance services.

• Simplified Filing: HSN codes reduce errors in filing and save time for businesses and individuals when filing their GST. It acts as a lucrative factor for insurance.

• Transparency: HSN codes will ensure transparency between insurance providers, tax authorities, and policyholders, enhancing customer confidence.

• Avoidance of Penalties: Utilising HSN codes helps prevent heavy penalties for incorrect tax filings. Thus, allowing you to save money on unnecessary expenditures.

The knowledge of HSN codes is essential for vehicle insurance under GST. HSN codes categorise services to ensure proper tax management. Here is a list of points reflecting the significance of the HSN code in vehicle insurance:

Ensures Accuracy

HSN codes classify vehicle insurance services under proper GST norms. For instance, motor insurance falls under code 9971, which is subject to a standard 18% GST rate. Thereby helping with tax planning.

Promotes Transparency

They establish a lucid connection among policyholders, insurers, and tax authorities. This is essential, as India earns over ₹27,000 crore annually from GST on insurance premiums.

Legal Compliance

The HSN code used evades penalties due to incorrect tax filings. In India, the penalty amounts to ₹10,000 or 10 per cent of the actual tax amount if the tax filer is found to be non-compliant.

Facilitates Audits

Correct HSN codes simplify the audits and inspections of tax authorities. GST audits in India are mandatory for business organisations having a turnover above ₹2 crores.

Improves Trade Efficiency

HSN codes are accepted globally and facilitate seamless cross-border transactions. This ensures insurers' compliance with international services under India's Goods and Services Tax (GST) regime.

Decreases Errors

Classification with HSN corrects instances of financial errors and tax mismatches. Input Tax discrepancies caused by misclassifications can hamper business cash flows. Thus, HSN classification reduces these errors.

Finding the correct HSN code for car insurance is easy if you follow the procedure. It will ensure that you remain updated with GST laws and thus avoid errors in tax compliance. Here's the step-by-step procedure to find it:

Step 1: Check Government Websites

At the renewal time, the insured may be required to provide a self-reported statement verifying the miles driven during the preceding year. This confers an upper hand to the insurer, who shall use the information to calculate premiums.

Step 2: Use of Online Utilities

Use the HSN code directory, available on official government and private portals. Primary tax consultancy portals, such as the GST portal, provide accurate classification as they are regularly updated, and thousands of businesses utilise them.

Step 3: Approach Your Insurer

You will get the HSN code directly from your insurance company. There is usually a section in every insurance company to clarify customers' holdings of their policy. Therefore, you will find the correct information as per your policy.

Step 4: Verification from GST Portals

Verify the HSN code on the GST official portal. The GST portal in India is user-friendly and can verify the HSN code of services within seconds. This also reduces the probability of misclassifications and errors

Step 5: Seek Expert Advice

Seek the expertise of tax specialists or legal counsel to find HSN. Professionals are thoroughly updated on the latest GST rules. Therefore, it minimises the risks of non-compliance, enhancing efficiency. 

Step 6: Mobile Apps

Download apps that offer quick access to HSN codes for various services, including vehicle insurance. Many Indian apps, such as GST Helpline and Tax Adda, are free and easy to use. These apps save time and serve as a handy tool for policyholders.

Step 7: Stay in Touch with Your Insurance Provider

Your insurance provider must communicate effectively with you, as they will provide timely clarification and information. This will ensure that your policy updates are in line with current GST guidelines.

If you are aware of the impact caused by incorrect usage of the HSN code, you will be more likely to use it properly. Incorrect usage of the HSN code has severe consequences, including:

• A tax authority may impose fines on a trader for misclassifying goods, thereby incurring unexpected financial burdens. 

• If the HSN numbers are incorrect, it can result in a double payment or underpayment of taxes, leading to financial losses or severe penalties. 

• Misclassification can cause customs to hold goods for inspection, resulting in shipment delays and potential supply chain disruptions. 

• Frequent mistakes in HSN codes may lead to an audit and increased scrutiny from tax authorities, potentially resulting in litigation. 

• An incorrect classification can result in the loss of benefits from various trade agreements or exemptions supported by those agreements, negatively impacting a business. 

Using the HSN codes correctly is crucial for ensuring accurate GST compliance and avoiding penalties. However, there are mistakes, such as obsolescence or misclassification. Below are a few of the common mistakes to make you aware of:

Wrong Classification

Outdated Codes

Using old or obsolete HSN codes can result in penalties and rejected filings. The GST council in India frequently updates classifications, so staying informed about changes is crucial.

Absence of Verification

Failure to verify HSN codes against official resources increases the likelihood of errors. Verification through the GST portal or insurer documents will ensure the filing is accurate and compliant.

Not Updating

Non-compliance and fines result from ignoring updates from the GST council on HSN codes. GST notifications also help avoid any disruption in filing or processing returns if monitored regularly.

Note: Always verify HSN codes with official sources to avoid the imposition of penalties.

Accurate use of HSN codes in vehicle insurance is relevant for compliance and cost-effectiveness. Practical scenarios offer valuable insights into the appropriateness of HSN code usage. Here are a few case studies to support it:

Case Study 1: Better Compliance

A small Indian business avoided ₹50,000 in overpayment by correctly using the 9971 HSN code for vehicle insurance. By correctly classifying, they avoided the 18% GST, thus saving on the extra amount paid.

Case Study 2: Error Minimised

By utilising accurate HSN coding, an insurance company reduced GST filing errors by 30%. The above improvement smoothened the company's tax processes and increased its compliance.

Case Study 3: Increased Operational Efficiency

• A logistics company streamlined its operational efficiency by 25% after updating its HSN codes to comply with the new GST guidelines. It reduced tax processing delays and cash flow hassles.

• A regional insurer successfully won customer trust by clearly displaying the correct HSN codes on all policy documents. This led to a 15% increase in the customer retention ratio.

Note: Proper HSN code usage guarantees compliance and cost savings.