All You Need to Know About HSN and SAC Code
- Posted By SuperCA
- On 01 August
Under the GST administration, the goods and services in India are classified under two sections which are either in the HSN Code system or the SAC Code System. Goods are classified under HSN and Services under SAC. HSN Stands for Harmonized System Nomenclature whereas SAC stands for Service Accounting Code. Let's understand them.
HSN (Harmonized System Nomenclature)
HSN expands to Harmonized System Nomenclature. It was developed by the World Customs Organization with a motive to classify goods from all over the world in a systematic and organized way. Almost 98% of the merchandise in international trade is classified in terms of the HSN.
The HSN system is used by more than 200 Countries and economies as a basis for their customs tariffs and for the collection of international trade statistics. However, the HSN code can be altered as required by each country using it to fit their system of identification and taxation.
The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 subheadings. It is arranged in a legal and logical structure and is supported by well-defined rules to achieve uniform classification. Sections and chapters are arranged in order of a product's degree of manufacture or in terms of its technological complexity. Let’s look at the various sections:-
|
Section |
Products |
|
1 |
Live Animals |
|
2 |
Vegetables and their products |
|
3 |
Animal/vegetable fats |
|
4 |
Prepared foodstuffs, Manufactured Tobacco |
|
5 |
Mineral products |
|
6 |
Chemical products |
|
7 |
Plastic and rubber products |
|
8 |
Raw hides and skins, Leather, Furskins and articles thereof, saddlery and harness, travel goods, handbags and similar containers, articles of animal gut ( other than silkworm gut ) |
|
9 |
Wood and articles of wood, Wood charcoal, Cork and articles of cork, Manufacturers of straw, of Esparto or of Other Plaiting Materials |
|
10 |
The pulp of wood or of other Fibrous Cellulosic Material, Recovered ( Waste and scrap ) paper or paperboard, paper and paperboard and articles thereof |
|
11 |
Textile |
|
12 |
Footwear, Headgear, Umbrellas, Sun Umbrellas, Walking-sticks, seat-sticks, whips, riding crops, and parts thereof, Prepared feathers and articles made therewith, Artificial flowers, Articles of human hair |
|
13 |
Articles of stone, plaster, cement, asbestos, mica, or similar materials, ceramic products, glass and glassware |
|
14 |
Natural or cultured pearls, Precious or semi-precious stones, precious metals, Metal clad with precious metal, and articles thereof, Imitation Jewelry, Coins |
|
15 |
Base Metals and Articles of Base Metal |
|
16 |
Machinery and mechanical appliances, electrical equipment, parts thereof, sound recorders and reproducers, television image and such recorders and reproducers, and Parts and Accessories of such article |
|
17 |
Vehicles, Aircraft, Vessels, and Associated Transport Equipment |
|
18 |
Optical, Photographic, Cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, clocks, and watches, musical instruments, parts and accessories thereof |
|
19 |
Arms and ammunition, parts and accessories thereof |
|
20 |
Miscellaneous Manufactured Articles |
|
21 |
Works of art, Collectors’ Pieces a d Antiques |
HSN Code Structure
India has been using 6-digit HSN codes to classify goods for Customs and Central Excise since 1971. However, 2 more digits were added later to make HSN codes for better differentiation. Depending on the turnover or nature of the sale, a business might be required to quote a 2-digit HSN, a 4-digit HSN, or an 8-digit HSN
|
Type of Business |
Applicability of HSN |
|
Turnover < Rs. 1.5 Cr |
Not required to follow HSN. |
|
Rs. 1.5 Cr < Turnover < Rs 5 Cr |
Use 2 digit HSN Code |
|
Turnover > Rs. 5 Cr |
Use 4 digit HSN code |
|
Imports and Exports dealer |
Use 8-digit HSN codes (mandatorily) |
For instance, let's take HSN-62.13.90
In this case, the first two digits (62) are used to describe apparel or clothing (but not knitted or crocheted clothing). The next two digits (13) refer to handkerchiefs. Finally, (90) refers to the fact that these handkerchiefs are made of other textiles or materials. So, this code is referring to handkerchiefs that are made from textile materials.
In India, there are two additional steps. If the handkerchiefs were made of man-made textiles, then the total code would be 62.13.90.10 wherein the 10 refers to the man-made textiles. Similarly, if the products were made of silk or silk waste, then the code would be 62.13.90.90, wherein the 90 refers to the silk or silk waste.
Let's take another one - 72.02.99.11 is the HSN code for ferrophosphorus under other ferro-alloy products. Likewise, the HSN code for products under ferro-alloys is 72.02.99.
SAC (Services Accounting Codes)
SAC expands to Services Accounting Code is a classification system for services which is a standard set of code developed by the Central Board of Indirect Taxes and Customs (CBIC). Like the HSN code is for goods under the GST, in India, in the same way, SAC is used to classify services under the GST regime. 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.
SAC is required to be mentioned at the time of GST registration and Invoicing. It helps the business and client to distinguish the GST rates prevalent to their particular service and distinguish it from the huge number of services available.
SAC Code Structure
In SAC, all services tend to begin with the number 99, which is what distinguishes SAC from HSN. The next 2 digits represent the major nature of service and the last 2 digits represent the detailed nature of service.
For instance, let’s take SAC- 99.82.13. Here, the 99 represents all services in general. 82 classify this as legal services and 13 classify it as legal documentation for patents.
Conclusion
The HSN and SAC framework empowers the consistency of GST dependent on universal principles. It will give a typical structure to the government for the collection of data or analyzing the equivalent. Businesses need to determine the HSN and or SAC of the goods and services that they sell since these are mandatory fields in a GST-compliant invoice. However, small dealers under composition schemes will not be required to mention HSN / SAC codes in their invoices.
