HSN and SAC codes and their importance under GST

HSN & SAC Codes In GST

The HSN Code (product coding system) and SAC (service coding system) pave way for a systematic GST scenario. The Harmonized System of Nomenclature or HSN is an internal system of naming goods. GST HSN code is an 8-digit code assigned to goods by organizing them in a hierarchical manner. Service Accounting Code or SAC is the nomenclature adopted by the Goods and Services Tax Council for identifying services delivered under GST. These codes have been issued by the Central Board of Excise and Customs (CBEC) for the uniform classification of all the services as each service has been assigned a unique SAC.

Who needs to quote HSN/SAC under GST?

Every person registered under GST is required to state HSN code in its invoice in respect of goods supplied by him. The below ones need to quote HSN/SAC under GST:

  • Business with turnover equal to or greater than 5 crore INR is supposed to quote a 4-digit HSN.
  • Business with a turnover of less than 1.5 crore INR does not require to quote HSN in the invoice.
  • Business with a turnover between 1.5 crore INR and 5 crore INR is supposed to quote a 2-digit HSN.
  • In the case of exports, an 8-digit HSN is required to be quoted.
  • During registration or migration, the business will have to quote HSN code for the goods.
  • Small businesses under the composition scheme do not need to quote HSN.

Under GST, all goods and services transacted in India are classified under the HSN code system or SAC Code system. Goods are classified under HSN Code and services are classified under the SAC Code. Based on the HSN or SAC code, GST rates have been fixed in five slabs, namely NIL, 5%, 12%, 18%, and 28%.

Importance of HSN and SAC codes

Conceptualized by the World Customs Organisation, the main purpose of HSN is to classify goods in a systematic and logical manner. This brings in a uniform classification of goods and facilitates international trade. It was originally using 6-digit HSN codes to classify commodities for Customs and Central Excise. Later Customs and Central Excise added two more digits to make the codes more precise, resulting in an 8-digit classification.

The current system of GST HSN codes adopted in India is uniform throughout the country and also in sync with the global classifications. This greatly reduces the chances of errors made while doing inter-state trades as previously, every state had its own code for each product (for purchase and sale of the product).

Understanding the HSN Code

The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 subheadings.

The adoption of HSN has brought India at par with the rest of the countries of the world that are following the Harmonized System of Nomenclature after the introduction of GST. The HSN code is intended to make GST systematic and globally accepted.

It is expected to lead to the harmonization of customs and trade procedures. And hence, it leads to the minimization of the costs related to international trade.

Further, when HSN code is entered, the accounting or record-keeping systems can automatically pick up the related tax rates of the commodities under the GST regime. This ecosystem hence simplifies the trade procedures. Hence, it is important to mention the correct HSN codes during enrolment or registration under GST. GST compliant accounting systems like Cygnet FACE or any other have the facility to pick up the related tax rates once the HSN summary is fed into the system.

Having correct HSN Code of a product is necessary for GST compliances, since giving HSN codes is a compulsory field to be filled while filing GST returns or uploading invoices.

To summarise, the HSN code isn’t mandatory in the following cases:

  1. Dealers having an annual turnover of less than INR 1.5 Crore
  2. Dealers registered under the composition scheme of GST are exempted from the usage of HSN Codes.

Since GST returns are completely automated, it will be hard for the dealers to upload the description of the products being supplied. Hence, HSN Codes shall be automatically picked up from the registration details of the dealer.

HSN codes eliminate the need to upload a detailed description of the goods. This will save time and make filing easier since GST returns are automated.

A dealer or a service provider must provide an HSN/SAC wise summary of sales in his GSTR-1 if his turnover falls in the above slabs.

Logic Behind HSN Codes

 Handkerchiefs made of Textile matters 62.13.90

  • The first two digits (62) represent the chapter number for Articles of apparel and clothing accessories, not knitted or crocheted.
  • The next two digits (13) represent the heading number for handkerchiefs.
  • Finally, the last two digits (90) are the product code for handkerchiefs made of other textile materials.
  • India has 2 more digits for a deeper classification.
  • If the handkerchiefs are made from a man-made fiber, then the HSN code is
  • If the handkerchiefs are made from silk or waste from silk., then the HSN code is

In a nutshell, a common structure i.e. HSN / SAC code enables governments of countries to collaborate data of purchases and sales of commodities and analyze the same.

At Cygnet Infotech our GST Return Filing solutions are replete with the ability to produce HSN summaries for the products and facility to input HSN codes summary in the systems so that the correct tax rates are picked up by the systems to apply to the products.

Cygnet GSP is committed to providing cutting edge technologically driven solutions to file your GST returns easily with speed and accuracy. We strive to make your business a priority by simplifying GST return filing through our IT solutions. We live by our belief of ‘IT is about you’.

To schedule, a demo contact us at hello@cygnetgsp.in

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