HSN and SAC codes are vital under India's GST system for proper classification of goods and services. These codes help ensure accurate tax filing and compliance with GST regulations. Whether you are a new business or established, understanding HSN and SAC codes is essential to avoid penalties and streamline GST processes.

What Are HSN and SAC Codes?

HSN, or Harmonized System of Nomenclature, is a widely accepted system for classifying traded goods. HSN ensures that each type of product is uniformly classified. HSN is a 6 to 8-digit uniform code that classifies 5000+ products and is accepted worldwide. SAC, or Services Accounting Codes, is a 6-digit code and is used for categorizing services under the same GST system. Both the HSN and SAC codes are very important for correctly identifying goods and services. These codes are mainly required while drafting invoices and even while filing returns for GST.

Format of HSN and SAC in GST

Structure of HSN Code is as follows:

HSN codes are designed to classify goods under GST systematically. The HSN code consists of 6 to 8 digits, where each part of the code provides specific information about the product's classification. Let’s break it down with an example: The HSN code for chocolate is 18063210

• The first two digits (18) refer to the chapter. In this case, that chapter refers to cocoa and cocoa preparations.

• The next two digits (06) refer to the heading; it refers to a type of chocolate and other food preparations containing cocoa.

• The following two digits (32) refer to the subheading, which further decides the kind of product that is being imported as filled chocolate.

• An additional 2-digit extension (10) can be allowed in Indian GST to make the description more precise, say in retail packs.

Thus, the HSN Code 18063210 would reveal which tax rate and description must be applied to chocolate in retail packs.

The structure of SAC is as follows:

SAC codes are used to classify services and have a 6-digit format. Each part of the SAC code categorizes the service in broader and more specific terms.

Illustration of SAC Code: SAC code for legal services: 998213

• The first 2 digits of all SAC codes begins with the same number, 99. It represent the chapter for all services.

• The next two digits classify the service under the group, in which case it is legal and accounting services, with the digits being 82

• The last two digits specify the detailed service, in this case legal advisory and representation services, and are 13.

When is HSN required to be mentioned?

• If a business has a turnover of up to ₹1.5 crores, no use of HSN codes is permitted.

• Businesses with a turnover between ₹1.5 crores and ₹5 crores are mandatory to apply 4-digit HSN codes.

• For businesses having turnovers of ₹5 crores or more, 6-digit HSN codes are applicable.

When is SAC required to be mentioned?

• Service providers must mention a 4-digit SAC on B2B transactions if their aggregate turnover is under Rs. 5 crores.

• If the turnover exceeds Rs. 5 crores, then a 6-digit SAC is required to be mentioned for all transactions.

Why Are HSN and SAC Codes Important?

The use of correct HSN and SAC codes in the GST regime is important on the following grounds:

• It ensures uniformity in the classification of goods and services across various industries.

• Correct classification facilitates the processing of GST returns.

• It reduces errors such as the imposition of wrong rates. This can lead to a violation or penalty by the tax department.

These codes also ensure proper classification of goods and services, which in turn accelerates proper reporting and lessens the chances of penalty arising out of any discrepancy during a tax assessment or auditing process.

How to find the correct HSN and SAC code?

Here's a step by step guide to how to find the correct HSN and SAC code: 

Step 1: Login to GST Portal for HSN/SAC

Step 2: Select Description and provide the description of the product/service for which you need the HSN/SAC code.

Step 3: Select the correct HSN/SAC based on the options given.

Step 4: Once you've selected the right code, add it to all GST bills to classify your product and service correctly.

What are the differences between HSN and SAC code?

What is the penalty for non-compliance with HSN and SAC?

A penalty worth up to ₹50,000 can be claimed for defective or missing codes, ₹25,000 respectively for CGST and SGST;

In case these codes are not included, the processing of GST returns would get delayed and even stand the chance of getting investigated or audited by the tax authorities.

The way out of such penalty traps is to ensure you correctly apply the appropriate codes on each invoice as well as other GST documents.

Conclusion:

HSN and SAC Codes Form Part of the GST System. Though helping the right classification and easy tax filing, handling both together with other GST requirements, which include return filing, can be very challenging.

Let’s make GST filings a breeze with hisabkitab! Forget the headaches of managing HSN and SAC codes—we’ve got it all covered so you can stay penalty-free and totally compliant. With hisabkitab, handling GST becomes effortless, leaving you more time to focus on what really matters: growing your business. Say goodbye to the boring GST stuff and let us take care of the nitty-gritty while you get back to doing what you love!