HSN stands for Harmonized System Nomenclature, which was developed by World Customs Organization (WCO). Whereas SAC stands for Services Accounting Code, which is developed & issued by Central Board of Indirect Taxes & Customs (CBIC). In this blog, HSN Code & SAC under GST are covered in brief.
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What are HSN Code & SAC under GST?
Harmonized System Nomenclature (HSN) was developed with an objective to classify goods from all over the world in an organized & standardized manner. It is a 6 digit code, which contains more than 5000 commodity groups. To achieve uniform classification, HSN code is arranged in a legal & logical manner & is supported by well-defined rules. More than 200 Countries uses HSN System & it can be altered as required by each country by fitting according to their system of Identification & Taxation.
Harmonized System Nomenclature (HSN)
In India, since from 1986, HSN Code was used in the Central Excise & Customs regime. Further it was used to calculate Value Added Tax (VAT) & currently it is been used under Goods & Service Tax (GST). In India 8 digit HSN Code structure is followed. It is detailed classification of each product as compared to the standard 6-digit Code defined by WCO. In India there are 21 Sections which contains 99 Chapters divided into 1244 Headings & 5224 Sub-Headings.
Service Accounting Code (SAC)
SAC is defined for identifying the respective tax rate applicable to the services. Under SAC, services are classified as per their inclusions in GST Law. The SA Code is a 6 digit number instead 8 digit HSN Code. The first 2 digit in SAC remains same for all the services i.e. 99.
Who can use HSN & SAC Codes under GST?
HSN & SA Codes shall have to follow 3 different categories under GST-
| Sr. No | Aggregate Turnover in the preceding Financial Year | Applicability of HSN | Applicability of SAC |
| 1 | Up to Rs. 1.5 Crore* | Not Mandatory | Not Mandatory |
| 2 | Rs. 1.5 Crore to Rs. 5 Crore | 2 Digit HSN Code | Mandatory |
| 3 | Above Rs. 5 Crore | 4 Digit HSN Code | Mandatory |
| 4 | Import & Export Dealer (irrespective of any of the above 3 categories) | Mandatory 8 Digit HSN Code | Mandatory |
*Composition Scheme dealers are exempted may not be required to quote HSN.
The above categories was amended vide Notification No. 78/2020- Central Tax, dated 15th October, 2020 to mandate 4/6 HSN / SAC Code digits on supply of goods or services on the Tax Invoices w.e.f. 1st April, 2021.
| Sr. No | Aggregate Turnover in the preceding Financial Year | Number of Digits | Applicability of HSN/SAC |
| 1 | Up to Rs. 5 Crore | 4 Digit | Mandatory* |
| 2 | Above Rs. 5 Crore | 6 Digit | Mandatory |
| 3 | Import & Export Dealer (irrespective of any of the above 3 categories) | Mandatory 8 Digit HSN Code | Mandatory |
*HSN/SAC is optional in case of B2C invoices for turnover below Rs. 5 Crore.
Further, there was an addition in the above categories & was again amended vide Notification No. 90/2020- Central Tax, dated 1st December, 2020 to provide for class of chemicals supply. The 49 chemicals are specified in the enclosed Annexure have to compulsorily shown under 8 digits.
What is the Importance of HSN & SAC Codes?
According to the World Customs Organization, the main objective of HSN is to classify goods in logical & systematic manner. It brings uniform classification of goods & facilitates International trade. Originally there was 6 digit HSN code structure to classify commodities under customs & central excise. Later the codes were made precise & added 2 more digits resulting in an 8-digit classification. The current HSN code structure is uniform throughout the country & also accompany with the global classifications. It reduces the chance of errors as made in past while doing Inter State trade as every state were having their own code for each product for purchase & sale of product.
Why HSN & SAC Codes are important while filing GST Returns?
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Why HSN & SAC Codes are important under GST?
Goods & Services are recognized through their respective codes, which are globally accepted. With the help of these Codes, the identification of Goods & Services becomes easy & reduces the chance of errors & misinterpretations. While filing the GST Returns online, HSN Codes in respect of Goods & SAC Codes in respect of services has to be uploaded. Since GST returns are fully automated, so it is hard for the traders to upload the description of each product being supplied. Hence to reduce the efforts of the traders, HSN codes shall be automatically picked from the registration details. So, while filing GST Returns, there will be no need for entering the description of Goods & Services.
Is it necessary to follow HSN Code & SAC Code for all businesses?
HSN / SAC Codes are internationally recognized system of classifying & codifying of all goods & services. It will ensure proper levy of taxes & also comply GST with the International Standards. HSN / SAC provides systematic & logical way of classification & hence reduces the chance of misinterpretations. To reduce the chance of errors it is necessary to follow HSN / SAC Codes. There is also a fine of Rs. 50,000 (25,000 for CGST & SGST each) for Non mentioning or mentioning wrong HSN/SAC Codes under Section 125 of the GST.
Conclusion
To minimize errors while filing GST Returns, it is important to know & mention the right HSN/SAC Code for the product or service you are selling. Right from creating invoices in GST format to filing GST returns online, Manthan Experts simplifies everything. In case of any Query related to HSN/SAC then contact Manthan Experts for immediate relief.
Knowledge Source:
Tax Invoice Under GST (Goods & Service Tax)