Answer By law4u team
Under the Goods and Services Tax (GST) regime in India, HSN (Harmonized System of Nomenclature) and SAC (Services Accounting Code) are classification codes used for the identification and categorization of goods and services for tax purposes. Here’s a detailed explanation of both: 1. HSN Code (Harmonized System of Nomenclature): Definition: The HSN Code is a standardized international system of names and numbers used to classify traded products. It is used for goods under the GST system. Purpose: HSN codes help in the uniform classification of goods worldwide and are used for the identification of goods and determination of their tax rates. Structure: The HSN code is typically a 6-digit code, though it can be extended to 8 or 10 digits for more specific classification. First 2 digits: Represent the chapter (product category). Next 2 digits: Represent the heading (product subgroup). Next 2 digits: Represent the subheading (specific product). Example: HSN Code 1006: Rice First 2 digits (10): Chapter for cereals. Next 2 digits (06): Heading for rice. HSN in GST: Under GST, businesses with an annual turnover of over INR 5 crore are required to use 6-digit HSN codes for reporting sales of goods in GST returns. 2. SAC Code (Services Accounting Code): Definition: The SAC Code is used for the classification of services under GST. It is similar to the HSN code but is specifically designed for services rather than goods. Purpose: The SAC code helps classify and identify different types of services for the purpose of taxation and reporting under the GST framework. Structure: The SAC code is a 6-digit code, divided into parts that categorize services. First 2 digits: Represent the service category. Next 2 digits: Represent the service subcategory. Next 2 digits: Represent more specific service types. Example: SAC Code 9983: Other professional, technical, and business services. First 2 digits (99): Miscellaneous services category. Next 2 digits (83): Subcategory for professional, technical, and business services. 3. Purpose and Usage: Tax Determination: Both HSN and SAC codes are essential for determining the correct tax rate applicable to the goods or services under GST. GST Returns: Businesses must mention the correct HSN or SAC code while filing GST returns, such as GSTR-1 and GSTR-3B, for accurate reporting of transactions and calculation of taxes. Invoicing: Proper use of HSN/SAC codes ensures that goods and services are correctly identified on invoices, making it easier to comply with GST requirements. 4. HSN and SAC Codes in GST Returns: For Goods: HSN codes are used for goods, and businesses with an annual turnover exceeding INR 5 crore are required to mention 6-digit HSN codes in their GST returns (GSTR-1, GSTR-3B, etc.). For Services: SAC codes are used for services, and businesses must ensure the correct SAC code is used while filing GST returns for services rendered. 5. HSN/SAC Code Exemptions: Turnover Threshold: If a business's annual turnover is less than INR 5 crore, it is not mandatory to provide HSN/SAC codes in GST returns for both goods and services, although it is still encouraged for better clarity. Summary: HSN Code is used to classify goods under GST, and it helps in identifying the goods for tax purposes. SAC Code is used to classify services under GST. Both HSN and SAC codes are critical for accurate tax reporting and compliance under the GST framework.
