Business owners and service providers must accurately determine the HSN code or SAC code applicable to their products or services. These codes must be correctly incorporated into GST invoices and returns. The number of digits required for the HSN or SAC codes may vary based on your annual turnover. Ensure compliance with the specified code length as per your business scale.
Understanding the HSN Code in the context of GST, the
“HSN code” is the Harmonized System of Nomenclature code, a globally recognized product classification system. Initially proposed by the World Customs Organization (WCO), this code serves the purpose of universally categorizing goods. In 1986, India adopted the HSN codes for classifying goods in Customs and Central Excise tariff duty. Notably, the HSN tariff numbers employed in GST invoices align seamlessly with the classification used for Customs purposes.
HSN Code Structure in GST
In the GST framework, the HSN code is a numerical classification system, commencing with a 6-digit code. To enhance clarity, Customs, and Central Excise authorities have extended this code by incorporating two additional digits, resulting in 8 digits within the defined HSN code.
- The initial two digits of the HSN code represent the GST chapter number.
- The subsequent two digits denote chapter headings.
- The following two digits indicate subheadings.
- The concluding two digits in the HSN code delineate further subheadings.
HSN Code Applicability Requirements:
- Annual Revenue Below Rs. 1.5 Crores:
Taxpayers under this category are exempt from using HSN codes.
- Annual Revenue Between 1.5 Crores and 5 Crores:
Businesses with annual revenues surpassing 1.5 crores but below five crores must utilize a two-digit HSN code.
- Annual Revenue Exceeding 5 Crores:
Entities generating annual revenue exceeding five crores must employ a 4-digit HSN number.
- Import and Export Activities:
Individuals engaged in import and export activities must adhere to the eight-digit HSN code.
How to Determine the HSN Code for a Product
Select the Relevant Chapter:
Identify the chapter that broadly categorizes the product. For instance, the HSN code for Aerated water falls under Chapter 22.
Identify the Section:
Within the chosen chapter, determine the specific section applicable to the product. In the example, the section is represented by 02.
Narrow Down the Subheading:
Further, refine the classification by selecting the subheading that best describes the product. In the case of Aerated water, the subheading is 10.
Obtain the Complete HSN Code:
Combine the chapter, section, subheading, and any additional subheading to derive the complete HSN code. For Aerated Water, the HSN code is 22021010.2202, where 22 is the Chapter, 02 is the Section, 10 is the subheading, and 10 is a further subheading.
SAC Code format in GST
In the context of GST, the SAC number is a six-digit code designed for services, with the following characteristics:
All SAC codes initiate with ’99,’ representing the overarching category of services shared across all codes.
Major Service Category:
The next two digits, such as ’54,’ indicate the major service category, defining the heading under which the service falls. For instance, ’54’ may represent ‘construction services.’
Specific Service Nature:
The final two digits, like ’11,’ specify the detailed nature of the service within the significant category. In the example, ’11’ signifies ‘general construction services of buildings.
Utilization of SAC Code in GST
The application of SAC codes within the GST framework serves various purposes:
SAC codes provide unique identification for different services, facilitating easy differentiation and categorization.
GST Rate Determination:
These codes aid GST taxpayers in identifying the applicable GST rate for their services, ensuring accurate tax calculations.
GST taxpayers must specify SAC codes during their registration on the GST portal, on invoices, and in GST return filings.
Understanding the differentiation between HSN and SAC
Goods vs Services Identification
- SAC Codes for Services:
- SAC codes are exclusively designated for services, providing a systematic classification for various service categories.
- HSN Codes for Goods:
- HSN codes, on the other hand, are specifically designed to classify goods, offering a comprehensive system for categorizing diverse products.
- SAC Codes Origin:
- SAC codes are derived from a modified UNCPC (United Nations Central Product Classification) code system. These modifications are implemented by the Central Board of Indirect Taxes and Customs (CBIC) and apply to all services supplied within India.
- HSN Codes Origin:
- HSN codes originate in the World Customs Organization’s (WCO) HSN nomenclature system, a globally utilized classification for goods. While the WCO’s system utilizes a 6-digit number for over 5,000 commodity groups, Indian HSN codes are adapted to an 8-digit format.
Number of Digits
- SAC Code Digits:
- SAC codes consist of a total of 6 digits, providing a concise representation for service classification.
- HSN Code Digits:
- In contrast, HSN codes comprise 8 digits, allowing for a more detailed and nuanced classification of goods.
Also Read: HSN Code Requirement in Invoice in GST
Comprehending the disparity between HSN Code and SAC Code is imperative for businesses navigating the intricate landscape of GST compliance. HSN Codes primarily govern the classification of goods, utilizing a global nomenclature system, while SAC Codes exclusively apply to services, streamlining their categorization under GST regulations. The distinction in code structure, digit count, and the entities they pertain to elucidates their unique roles. By embracing a nuanced understanding of HSN and SAC Codes, businesses can ensure accurate invoicing, seamless tax filing, and overall adherence to GST norms, fostering a smoother and more efficient operational environment.
Frequently Asked Questions(FAQs)
What is the SAC Code in GST?
The SAC code in GST, or Services Accounting Code, is a unique identifier for the classification of services provided under the Goods and Services Tax. It serves the purpose of systematically categorizing various services for taxation.
How is the SAC Code Used in an Invoice?
In an invoice, the SAC code corresponds to the specific services offered by the GST taxpayer. A numeric code facilitates the proper classification of services, aiding in accurate taxation. Refer to the official documentation for a comprehensive list of SAC codes and descriptions.
Is it Mandatory to Include the HSN Code in the Invoice?
Taxpayers utilize HSN codes for classifying goods during GST return filings. Inclusion of the HSN code in an invoice is obligatory only if the annual revenue exceeds 1.5 Crores.
Do All Countries Follow the Same HSN Code?
The HSN (Harmonized System of Nomenclature) was developed by the World Customs Organization (WCO) to categorize products. Nations under the WCO generally use similar HS codes, represented by a six-digit HSN number. However, some countries may employ an 8-digit code to further sub-classify products or groups.