What is HSN Code?
HSN codes or “Harmonized System of Nomenclature” is the Harmonized Commodity Description and Coding System. It is a multipurpose international product nomenclature developed by the World Customs Organization (WCO). It first came into effect in 1988. It contains a six-digit uniform code, arranged in a legal and logical structure, which classifies more than 5,000 products and is accepted worldwide. It is supported by well-defined rules to achieve uniform classification.
Understanding the HSN Code
The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 subheadings.
- Each Section is divided into Chapters. Each Chapter is divided into Headings. Each Heading is divided into Sub Headings.
- Section and Chapter titles describe broad categories of goods, while headings and subheadings describe products in detail.
For example:
Handkerchiefs made of Textile matters 62.13.90
- First two digits (62) represent the chapter number for Articles of apparel and clothing accessories, not knitted or crocheted.
- Next two digits (13) represent the heading number for handkerchiefs.
- Finally, last two digits (90) is the product code for handkerchiefs made of other textile materials.
India has 2 more digits for a deeper classification.
If the handkerchiefs are made from a man-made fibre, then the HSN code is 62.13.90.10.
If the handkerchiefs are made from silk or waste from silk., then the HSN code is 62.13.90.90.
Services Accounting Code (SAC) in GST
What is SAC?
Like goods, services are also classified uniformly for recognition, measurement and taxation. “Services Accounting Code” or SAC is a system used for classification of services developed by the Service Tax Department of India., which remains same for GST.
The council has finalized the rates for services into five slabs which are 0%, 5%, 12%, 18%, 28%. A default GST rate of 18% for services will be applicable if a service is not exempted from GST or the rates are not provided. The SAC structure is same as that of HSN structure.
For example:
Legal documentation and certification services concerning patents, copyrights and other intellectual property rights– 998213
- The first two digits are same for all services i.e. 99
- The next two digits (82) represent the major nature of service, in this case, legal services
- The last two digits (13) represent detailed nature of service, i.e., legal documentation for patents etc.
Why is HSN & SAC important under GST?
The purpose of SAC and HSN codes is to make GST systematic and globally accepted. Also, to classify goods from all over the World in a systematic and logical manner. This brings in an uniform classification of goods and facilitates international as well as national trade.
SAC and HSN codes will remove the need to upload the detailed description of the services and goods respectively. This will save time and make filing easier since GST returns are automated.
Since every business in India needs to declare the detailed list of the goods they are dealing into which is required alongside the HSN code of the commodity. By inputting the details, the IT systems of the GST will automatically pick the tax rates based on these HSN codes under the GST regime. Therefore, a taxpayer needs to be careful while mentioning the HSN codes at the time of registration under GST.
Therefore, the main objective of using HSN codes is to ensure that invoicing under GST are matching with the international standards of product nomenclature.
Who all needs HSN & SAC?
At the time of generation of Invoices under the GST Regime, the dealer is required to mention the HSN Code of his commodity as below:-
- Business with turnover less than 1.5 crores will not require SAC/HSN codes for their goods and commodities.
- Businesses with turnover between Rs. 1.5 crores and Rs 5 crores shall be required to use two digit SAC/ HSN codes for their commodities.
- Business that have a turnover of 5 crores and above will require to use 4 digit SAC/ HSN codes.
- In case of imports and exports the SAC codes will be 8-digits.
- The small dealers under composition scheme will not require to mention SAC/HSN codes in their invoices.
- At the time of registration, migration the business taxpayer will be required to mention HSN codes of the goods he deals with during registration.
The turnover for previous year will be considered as a basis to find out number of HSN digits to be used.
Does the HSN codes must be declared in every tax invoice issued by the taxpayer under GST?
A dealer or a service provider must provide HSN/SAC wise summary of sales in his GSTR-1 if his turnover falls in above slabs.
How can I find HSN / SAC of my supply?
Please visit HSN/SAC Finder to find out both HSN codes of goods & SAC codes of services.
If you have any query visit us at forum
