HSN AND SAC CODE under GST
What is an HSN Code?
HSN stands for Harmonized System of Nomenclature. HSN was raised and industrialized by the WCO (World Customs Organization) in the year 1988. Since then 5 revisions has already been implemented worldwide. HSN code asserts more than 5000 goods meticulously and is widely used by more than 150 countries. It is a globally accepted multipurpose tool for customs and trade procedure.
Structure of HSN code
The structure of HSN code has about 21 groups, and these groups are further classified into 99 chapters. The chapters are then divided into headings that are about 1244 in number. The headings are subsequently divided into 5224 subheadings. In the code itself, this plays out in the following manner:
- Each Chapter is named as a two-digit HSN number.
- Each two-digit HSN number is sub-classified into a four-digit HSN code.
- Later, such four-digit HSN codes are further sub-classified into the six-digit HSN code.
- Note that to sub-classify the six-digit HSN code number in some countries, there must be an additional two-digit HSN code put into place in order to create an eight-digit HSN code.
What is SAC Code?
Service Accounting Code (SAC) is a unique code that is identical to the International HSN codes in many ways. SACs are issued by Central Board of Indirect Tax to classify each service so as to identify the applicable rate of tax on the respective services. These SACs are used at the time of generating invoices for the services rendered. Using SAC code, the GST rates for services are fixed in five slabs namely 0%, 5%, 12%, 18% and 28%. If a service is not exempted from GST or if the GST rates are not provided, then the default GST rate for services of 18% would be applicable.
Structure of SAC code
The SAC code is a unique 6 digit number that contains two number each for
- Chapter
- Heading
- Sub-Heading
Let us understand this with an example, the SAC code for General construction services of mines and industrial plants is 995425 that consists
-99 is the code that denotes the Chapter and remains constant throughout
-54 stands for civil engineering works (Heading)
-25 is for general construction services for plants and mines (Sub-heading)
Provisions related to HSN/SAC under GST
The use of HSN/SAC codes are mainly for dealers and trades. They must adopt 2 digits, 4 digits, and 8 digits HSN/SAC codes depending upon the following criteria.
- Now the Govt. has given some relief to small taxpayer with annual turnover up to Rs 1.50 crores in preceding financial year need not be required to mention HSN/SAC code in their tax invoice.
- Taxpayers having turnover exceeds Rs. 1.5 crore but up to 5.00 crore will be required to mention only two digits of HSN/SAC code.
- Taxpayers having turnover exceeds Rs 5.00 crore will be required to mention four digits of HSN/SAC code.
- In the case of Import and export dealings and international trades, Taxpayer must adopt 8 digit HSN/SAC codes for the business trades.
Purpose of adopting HSN code in India
India has been a member of the WCO (World Customs Organization) since 1971. It initially employed six-digit HSN codes to classify merchandise for Customs as well as Central Excise duties. To make the codes more precise, the Customs and Central Excise authorities went on to add two more digits. This resulted in an eight-digit HSN classification.
After the introduction of GST, enactment of HSN code in India is bringing the country at par with the other countries which has been following HSN for years. HSN code was adopted by India to make GST standardized and worldwide accepted. This has also minimized the cost that are related to international trade as it will bring harmonization in trade and customs procedures.
The HSN will help every taxpayer in India to search the GST rate by just entering the HSN code after that the system will automatically show the tax rate applicable on the commodity under the GST, hence abridging and simplifying the trade related procedures in India. That is why it is mandatory to mention the correct HSN codes during the GST Return filing under GST. These are the reasons why India adopted HSN system.
Major Difference between SAC and HSN code
S.N0 | Parameters | HSN | SAC |
1 | Full Form | Harmonized System of Nomenclature | Services Accounting Code |
2 | Used For | HSN helps in identification of GST Rates applicable to goods. | SAC is used in identifying the GST rates applicable to services. |
3 | Structure | 8 Digit Code | 6 Digit Code |
Chapter wise distribution of commodities using HSN codes
Chapter No’s Description
Chapter 1 Live Animals and poultry
Chapter 2 Animal Meat and edible offals
Chapter 3 Fish, fillets and other aquatic animals meat
Chapter 4 Honey, Eggs and Dairy Products
Chapter 5 Inedible animal products (unspecified)
Chapter 6 Flowers, Live trees and plants
Chapter 7 Vegetables
Chapter 8 Fruits
Chapter 9 Tea, coffee, spices
Chapter 10 Cereals and Grains
Chapter 11 Milling Industry Products
Chapter 12 Medicinal Plants, seeds and fruits
Chapter 13 Lac, Gums, Resins, vegetable SAP and other extracts
Chapter 14 Vegetable products and materials (unspecified)
Chapter 15 Oils, Fats, Vegetable and Animal products
Chapter 16 Fish and aquatic vertebrates meat (Prepared/Preserved)
Chapter 17 Sugar, sugar confectionery and bubble gums
Chapter 18 Cocoa and Cocoa products
Chapter 19 Pastry, pizza, bread, waffles
Chapter 20 Fruits, Juices, Jams and Jellies
Chapter 21 Tea, coffee and other edible preparations
Chapter 22 Non-alcoholic beverages, Spirit and Vinegar
Chapter 23 Residual starch products, meals, and pellets
Chapter 24 Tobacco and tobacco products
Chapter 25 Salts and Marbles
Chapter 26 Mineral ores and concentrates
Chapter 27 Coal, Petroleum and other fossil fuels
Chapter 28 Gases and Inorganic Chemicals
Chapter 29 Hydrocarbons
Chapter 30 Blood and Pharma products
Chapter 31 Fertilizers and unspecified products
Chapter 32 Colouring and Tanning products
Chapter 33 Cosmetics and oils
Chapter 34 Soaps and waxes
Chapter 35 Glues and Enzymes
Chapter 36 Industrial explosives and fireworks
Chapter 37 Photographic and cinematographic goods
Chapter 38 Chemicals and clinical wastes
Chapter 39 Plastic products
Chapter 40 Rubber and rubber products
Chapter 41 Skins and rawhides
Chapter 42 Leather products: Bags, wallets, and handbags
Chapter 43 Raw and artificial fur products
Chapter 44 Wood products and Wood charcoal
Chapter 45 Natural and Shuttlecock Cork
Chapter 46 Basketware, of esparto or of other plaiting materials; wickerwork and manufacturers of Straw
Chapter 47 Wood Pulp
Chapter 48 Paper, Paperboard, Newsprint
Chapter 49 Printed Books, Newspapers and Postal goods
Chapter 50 Silk
Chapter 51 Fine, woolor coarse animal hair; woven fabric andhorse hair yarn
Chapter 52 Cotton
Chapter 53 paper yarn and woven fabrics of paper yarn and Other vegetable textile fibres
Chapter 54 Man-made filaments
Chapter 55 Man-made staple fibres
Chapter 56 Cables,ropes, felt and nonwovens,cordage, wadding; special yarns; twine and articles thereof
Chapter 57 Carpets and other textile floor coverings
Chapter 58 Fabrics of tufted textile, lace; tapestries,trimmings; embroidery
Chapter 59 Coated and laminated textile fabrics, special woven fabrics,
Chapter 60 Knitted or crocheted fabrics
Chapter 61 Accessories of clothing knitted or crocheted and articles of apparel
Chapter 62 Clothing accessories not knitted or crocheted and articles of apparel
Chapter 63 Other textile articles, sets, worn clothing and rags,worn textile articles
Chapter 64 Footwear, gaiters, and parts of such articles
Chapter 65 Headgear parts thereof
Chapter 66 Umbrellas, walking stick and accessories
Chapter 67 Wigs, artificial flowers, false beards
Chapter 68 Cement, Plaster, mica and construction materials
Chapter 69 Bricks and ceramic products
Chapter 70 Glass and glassware products
Chapter 71 Gold, silver, diamond, pearls and other precious metals
Chapter 72 Iron, steel, Iron rods and non-alloy products
Chapter 73 Railway tracks, iron tube, Containers, nails, needles and sanitary wares
Chapter 74 Copper and copper alloy products
Chapter 75 Nickel and nickel alloy products
Chapter 76 Aluminium and aluminium products
Chapter 77 (Reserved for possible future use)
Chapter 78 Lead, lead foils and sheets
Chapter 79 Zinc bars,Zinc dust and sheets
Chapter 80 Tin, tin bars and profiles
Chapter 81 Cobalt, Magnesium, Bismuth and other base metals
Chapter 82 Agricultural tools, cutlery, razors and knives
Chapter 83 Padlocks, bells, safe deposit lockers and base metal products
Chapter 84 Industrial tools and machinery
Chapter 85 Electrical and electronic products
Chapter 86 Railway machinery and locomotives
Chapter 87 Motor vehicles
Chapter 88 Aircraft, satellites, parachutes
Chapter 89 Boats, ships, cargo vessels
Chapter 90 Artificial organs, Medical equipment, monitoring systems, photographic, cinematographic accessories, lens and optical fibres
Chapter 91 Watches and clocks
Chapter 92 All Musical Instruments
Chapter 93 Arms and Military weapons
Chapter 94 Lighting, furniture and household products
Chapter 95 Electronic toys, sports goods and gaming consoles
Chapter 96 Pens, pencils, educational equipment's and smoking pipes
Chapter 97 Arts and Antiques
Chapter 98 Passenger baggage, laboratory chemical and project imports
Chapter 99 Services
Frequently Asked Questions
1. What are HSN codes in GST?
HSN (Harmonized System of Nomenclature) is developed by the World Customs Organisation. These codes are used to classify the goods and is accepted across the world. HSN codes help in filling the GST returns, import and export of goods.
2. Is it mandatory to mention HSN code in the invoice?
HSN codes are used for the classification of goods by the taxpayers during filing GST returns. If the dealers or taxpayers turnover is more than 1.5 Crores, then he/she must mention the HSN code in the invoice otherwise it is not mandatory to disclose HSN on taxable invoice.
3. Is HSN code same for all countries?
HSN (Harmonized System of Nomenclature) is developed by World’s Customs Organisation. HSN codes are used to classify the goods. HS codes are similar in all the countries which are under WCO. They use 6 digit HSN code for the goods, but some countries use 8 digit code to subclassify the product or goods.
4. How HSN codes are unique?
HSN codes are unique for each product. Under HSN, all the goods and services are divided into 21 sections, 99 chapters. Under 99 chapters there are 1244 headings and 5244 subheadings. Each item which is used for trade or commercial use, it is identified with 8 digit code using the HSN code rules.
5. How to calculate GST using HSN code?
Taking an example of Cocoa powder to calculate the GST using HSN code.
Cocoa Powder( chocolate powder) per Kg= Rs.1,000.
HSN code = 18 05 00 00
GST rate = 18%
GST = Rs. 180
6. Why is it necessary to follow the HSN code?
HSN code provides standardization and global acceptance of the goods. Under GST regime it is mandatory for all the business on which HSN system is applicable to get HSN code so as to levy the proper rate of taxes on them set by the concerned authorities in India.
7. If all the business has to get the HSN code or not?
No, HSN codes are not applicable to all the industries. These industries include
- Any business whose turnover is less than 1.5 crore INR.
- Any business which is registered under GST composition scheme.
8. Is HSN code is required while GST Return filing?
Yes, as it will be difficult for the business to enter each and every detail of the dealer. Businesses can opt for HSN code which will help to save more time. But businesses shall carefully choose the HSN code while filing the details in the GST Return.
Ramesh Kumar Gupta (Team Taxaj)
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