Amrish Steis

In this article, we will cover what these codes are, where you can find them under GST, and how you can use HSN in India.

HSN (Harmonized System of Nomenclature) has been introduced for an orderly classification of goods worldwide. This code is a uniform 6-digit code that helps to classify more than 5000 products. It came into effect in 1988 and was developed by the WCO(World Customs Organization).

The HSN system is recognized internationally for codifying and classifying all the products worldwide. In addition, the WTO(World Trade Organization) and individuals use the HSN system to trade and trade negotiation.

21 sections of HSN code

Service Accounting Code, also known as SAC, is the code issued by the Central Board of Indirect Tax & Customs (Service Tax Department) to classify and identify the services offered. Each Service provided has a unique SAC code precisely like a unique HSN for different categories of products.

People involved in providing services can and should use the SAC code to understand the tax imposed on the services offered and received clearly.

SAC (Services and Accounting Code) codes are based on the Harmonized System of Nomenclature, an internationally recognized system for classifying and codifying all the products in the world. This system enables the compliance of GST based on international standards.

Under GST, HSN and SA codes shall have 3 different categories.

Dealers under Composition Scheme who are exempted are not required to quote HSN.

The above categories were 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.

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 a class of chemicals supply. Therefore, the 49 chemicals are specified in the enclosed Annexure have to show under eight digits compulsorily.

Above, we have seen the basic concept of HSN. Now let us look at its structure.

The HSN code contains:

For Indian manufacturers, it is required to follow the three tired HSN structures.There are about 21 groups in the HSN structure, and further, these groups are categorized into 99 chapters. Then these chapters are divided into headings with 1244 in number. These headings are then subsequently divided into 5224 subheadings.

The HSN Codes plays out in the below manner:

Example of an HSN code - schematic

Breaking up the 6 digit SAC in GST

For example, the SAC for Information technology (IT) design and development services is 998314.

The taxpayers shall mention all the following instances, HSN for goods and SAC for services.

1. GST RegistrationEvery business under GST will need to declare the goods and services type that they are dealing with. Thus, it is essential to mention the correct HSN/SAC code at the time of registration.

2. GST RateFor goods and services, if the taxpayer is aware of HSN/SAC code, he can easily determine the GST applicable rate.

3. GST InvoiceWhen a seller issues an invoice for goods and services, he needs to mention the HSN/SAC code in the invoice, which is based on the total turnover of his business.

4. GST ReturnsWhen the taxpayer files the GST Return, he needs to report the HSN Summary. The summary consists of the details of goods and services sold, classified based on HSN/SAC reported.

The main difference between HSN and SAC codes is that HSN codes are meant only specifically for goods and services, and SAC codes specify for services only. Other, difference is in the number of digits in their code and their relevance. Example - HSN Code is an 8-digit code, and SAC code is a 6-digit code.Click here to view the entire list for HSN and SAC codes

Under GST, all products and services have an associated HSN and SAC code for allocating the correct GST rate. Deskera Books has all these HSN and SAC codes inbuilt for goods and services, and will automatically apply the tax rates and cess, so you don't have to refer to an excel sheet every time.

Refer the below article to know how HSN and SAC codes work in Deskera Books.

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