Table of Contents1. Introduction |
|
Introduction
The Goods and Services Tax (GST) system in India depends mostly on the classification codes to determine the correct tax rates for goods and services. These codes which are HSN for goods and SAC for services helps to make sure uniformity across the country and prevent errors during GST filing. Understanding how they work is important for businesses to apply the correct tax rates and stay compliant.
What Is HSN & SAC Code?
HSN (Harmonized System of Nomenclature) is an international classification system used for goods while SAC (Service Accounting Code) is used to classify services. These codes help identify the nature of the product or service which helps to make sure consistency in GST application. Businesses use HSN codes for goods and SAC codes for services to determine the appropriate GST rates during tax calculation.
In GST, HSN codes form the base for HSN code GST rate calculation while SAC codes serve the same purpose for SAC code GST rate calculation.
Why Are HSN & SAC Codes Important for GST?
HSN and SAC codes are used to simplify tax compliance as they provide a structured method to classify goods and services. This reduces confusion and ensures transparency and standardizes GST rates across industries. They also help to avoid misclassification and penalties especially during audits or returns.
Because they are the foundation for applying the right tax rate and filing accurate GST returns.
Difference Between HSN/SAC Codes in GST
|
Parameter |
HSN Code |
SAC Code |
|
Meaning |
HSN stands for Harmonized System of Nomenclature. It is a globally used coding system for classifying goods. |
SAC stands for Service Accounting Code. It is used in India to classify different types of services under GST. |
|
Purpose |
Helps to determine GST rates applicable on goods by identifying their category and characteristics. |
Helps to determine GST rates applicable on services by defining the exact nature of the service provided. |
|
Applicability |
Applicable only to goods like machinery, textiles, food items, electronics, etc. |
Applicable only to services such as consultancy, repair services, hospitality, IT services, etc. |
|
Structure |
Typically consists of 6- or 8-digit codes. More digits mean finer classification. |
Consists of 6-digit codes where each series represents a broad service category and subcategories. |
|
Scope |
Based on international customs classification used by over 200 countries which ensure global uniformity. |
Used mainly in India for GST purposes and not a global standard. |
|
Example |
851712 – Telephone for cellular networks |
998314 – IT consulting and support services |
|
Role in GST |
Used to finalize GST rate for goods and avoid misclassification during billing and filing. |
Used to identify the correct GST rate for services and make sure accurate service tax reporting. |
|
Impact on Return Filing |
Required in invoices and GSTR filings for businesses depending on turnover thresholds. Make sure to correct the goods classification. |
Mandatory for service providers in GST returns to ensure correct service classification. |
Using HSN/SAC Codes for Accurate GST Filing
Below are steps how you can use HSN/ SAC code for accurate GST filling for your business:
-
➜ Select the correct HSN/SAC code to make sure accurate GST rate application on goods or services.
-
➜ Verify the code using a reliable HSN code GST rate finder or SAC code GST rate finder before invoicing.
-
➜ Match the product/service description with the exact code to avoid misclassification.
-
➜ Make sure the code aligns with the applicable GST rate slab by HSN/SAC code as notified by the government.
-
➜ Use the correct code consistently across invoices to avoid filing errors and compliance issues.
-
➜ Validate HSN/SAC codes when preparing returns to ensure error-free submission and reduce audit risks.
Conclusion
HSN and SAC codes are essential for determining the correct GST rate and helps in accurate filing. They bring consistency and clarity to the GST system which helps businesses to avoid compliance issues. By selecting the correct HSN or SAC code, businesses can have proper taxation, maintain transparency and simplify the entire GST filing process.
