There are millions and millions of products that are being traded across the globe. Due to the thriving global trade in millions of products, it had become vital to have a common understanding of the products that are being traded and also to develop countries speaking / adopting common product language, irrespective of their national boundaries. This article is aimed at understanding HSN and SAC code applied under GST in India.

As a solution to the above situation, way back in 1988, HSN coding system was developed by WCO. WCO developed the HSN coding system with a view to establish a world-wide uniform understanding of the millions and millions of product and also to establish a common product language across the world.

Around 200 countries have already adopted HSN coding system and around 98% of the merchandise in international trade is being classified in terms of HSN. Adoption of common HSN coding system by most of the countries has facilitated the uniform classification of the goods. HSN coding system eases up the calculation of the quantum of products that are being exported or imported from a country.

India is a member of WCO since 1971 and has accordingly adopted HSN coding system. Initially, India was using 6 digit HSN coding system to classify the products under Customs and Central Excise, however, in order to be more precise, later on, the Indian Government added 2 more digits, totaling up to 8 digit HSN code.

As we all are very well aware, India has seen its biggest tax reform in the form of Online Goods and Service Tax (GST) Filing with its new regime implemented on 1st July, 2017. Similar to the preceding law, under GST also the classification of goods is based on HSN code, however, for classification of the service, the Central Board of Indirect Taxes and Customs (CBIC) has introduced new coding system known as SAC.

In a nut-shell, under GST, the goods are being classified based on HSN code, whereas, the services are being classified based on SAC code.

The present article helps to understand the HSN and SAC coding system and also to figure out its importance while applying for the GST registration.

HSN CODING SYSTEM

Full form of HSN is the Harmonized System of Nomenclature. World Customs Organization (WCO) is responsible for developing and maintaining the HSN. HSN is an internationally standardized system of names and numbers to classify the traded products. HSN code helps to classify the goods from all over the World in a logical and systematic manner.

The hierarchy of HSN contains 21 sections, 99 chapters, 1244 headings and 5224 sub-headings. As can be seen, the hierarchy of HSN contains sections, which is divided into chapters. Each chapters are sub-divided into headings and each heading is further sub-divided into sub-heading.

Under HSN the sections and chapter titles describe broad categories of goods, whereas, the heading and sub-heading describe the products in more details. In general, HSN sections and chapters are arranged in order of a product’s degree of manufacture or in terms of its technological complexity.

HSN is a 6 digit code, however, in India 2 more digits are adopted for deeper classification and hence in India 8 digit code is adopted.

Example for a better understanding of HSN Coding system

Following example helps to understand the division and sub-division system under the HSN coding system.

HSN Code – 01012100 is classified as follow –

HSN division Code Description
Section 01 Live animals, Animal Products
Chapters 01 Live Horses, Asses, Mules and Hinnies
Heading 21 Horses
Sub-Heading 00 Pure-bred breeding animals

Mentioning of HSN code in the GST invoice

The mandatory requirement of quoting of HSN code in the GST invoice is based on the annual turnover in the preceding financial year. The details of the requirement of HSN code in the GST invoice has been provided vide Notification no. 12/2017 – Central Tax dated 28th June, 2017 and Notification no. 5/2017 – Integrated Tax dated 28th June, 2017 and the same is being summarized herein below:

Sr. No. Annual Turnover in the preceding Financial Year Number of Digits of HSN code to be quoted in the GST invoice
1 Up to INR 1.50 Crore 0
2 More than INR 1.50 Crores to INR 5 Crores 2
3 More than INR 5 Crores 4

In case of import / export of goods, the importer / exporter is required to mention complete 8 digit HSN code.

SAC CODING SYSTEM

After understanding the HSN coding system, now, let us take up the SAC coding system which needs to be followed by the service sector in India. Full form of SAC is Service Accounting Code. The services are classified under GST based on SAC.

SAC is adopted under GST for uniform classification and identification of services delivered under GST. SAC is being developed and issued by CBEC – Central Board of Excise and Customs (now known as Central Board of Indirect Taxes and Customs).

SAC is a 6 digit coding system, wherein, first two digits are common for all the types of service i.e. 99. Next two digits represents the major nature of service and the last two digits represents the detailed nature of service.

Importance of HSN and SAC at the time of GST registration

While applying for GST registration, under ‘Goods and Services’ tab, the applicant needs to provide the HSN code and / or SAC. If the applicant is dealing with the goods, he is required to provide appropriate HSN code for the product in which he deals. Like-wise if the applicant is a service provider, he is required to provide appropriate SAC for the services which are being provided by him.

A maximum list of 5 HSN / SAC can be provided while applying for GST registration. In case, the applicant is dealing in more than 5 goods / services, then, he is required to provide the top 5 goods or services.

In case there is a change in major HSN / SAC dealt with by the applicant, the same needs to be intimated to the department by way of the amendment to GST registration.

How to Search an appropriate HSN / SAC

  1. Visit site https://www.gst.gov.in/;
  2. Click on ‘Services’ icon;
  3. Further click on ‘User Services’;
  4. Select ‘Search HSN / Service Classification Code’;
  5. On selecting ‘Search HSN / Service Classification Code’, two option HSN and Service Classification Code would be displayed. Click on HSN, if one wants to find the product code, whereas, click on Service Classification Code, if one wants to find the service code;
  6. On clicking HSN or Service Classification Code, as the case may be, one needs to answer to following listed question –
    • Tax Type (answer need to be selected from the drop-down list),
    • Search HSN Chapter by Name or Code;
    • Effective Period; and
    • Type the characters that you see in the image.
  7. Click on SEARCH

Still got any queries regarding this? Post it in the comment section below and we will try getting the answers from our experts at Legalwiz.in

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