What are the differences between HSN and SAC code in GST?

Introduction

All of the goods and services that are subject to the GST in India are categorized using an HSN code (Harmonized System of Nomenclature) and a SAC (Service Accounting Code), which helps in removing any obstacles to international trade. These HSN and SAC codes have also been applied to invoices and record-keeping, which makes it simple to identify the products and services provided. In this article, we will examine the difference between the HSN and SAC codes in GST.

What is HSN code?

The term “HSN code” stands for Harmonized System of Nomenclature code. As a multipurpose international product nomenclature, the World Customs Organization (WCO) initially proposed the unique code for all goods intending to apply the classification of goods all over the world uniformly. India began using HSN codes in 1986 to categorize goods and items for Customs and Central Excise tariff duty. GST invoices use the same HSN tariff numbers for Customs.

What is HSN code in GST?

The HSN starts with a 6 digit code. The Customs and Central Excise authorities inserted 2 additional numbers for clarity purpose. The defined HSN code has a total of 8 digits. The GST chapter number is shown by the first two digits. The chapter headings are indicated by the next two digits. The following two digits denote a subheading, and the last two digits denote a further subheading. The classification of the goods in the HSN code is done under 21 sections, 99 chapters, 1244 headings, and 5224 subheadings.

HSN code applicability requirements

The Indian manufacturers must follow 3 tiered structure of HSN –

• Taxpayers with annual revenues under Rs. 1.5 crores are free from HSN.
• Taxpayers who have annual revenue above 1.5 billion but below 5 billion need to use a two-digit HSN code.
• Businesses with yearly revenue of more than 5 crores are required to use a 4-digit HSN number.
• The individual who manages import and export must follow the eight-digit HSN code.

What is SAC code?

The term “SAC” stands for Servicing Accounting Code. The service tax department in India has developed the SAC Codes as a system of categorization for services. The GST Council has opted to use the SAC code system for the purpose to levy GST in India.

What is SAC code in GST?

SAC refers to the 6-digit SAC in GST under GST law. For example, the SAC for IT design and development services is 998314.

• For all services, the first two digits of the SAC are the same, which is 99.
• In this case, the major type of services will be represented by the middle two digits (83) are IT services.
• The last two digits (14) will indicate the details for the Design and Development services.

SAC code applicability requirements

Service providers must use SAC codes while filling out GSTR. The services include providing hospitality, educational, financial, and other services. All services are categorized under chapter 99 of HSN module, which is devoted to services. The GSTR forms must include the SAC code. The requirements for using the SAC code in GSTR filing are given below.

• The SAC code is not required for the company which has a turnover less than Rs. 1.5 crores.
• SAC code is mandatory for the company which has a turnover between Rs. 1.5 to 5 crores.
• One must specify the SAC codes if the dealer or company has a turnover of more than Rs. 5 Cr.

What are the differences between HSN code and SAC code?

This is the major notable difference between the HSN code and SAC code that the Harmonized System of Nomenclature (HSN) code is used for the classification of goods under the Goods and Services Tax (GST). These codes are issued by the World Customs Organization(WCO). The Services Accounting Code (SAC), is used to categorize services. These codes are issued by the Central Board of Excise and Customs (CBEC) department. Another difference is the number of digits in their code and the significance of those digits. For example, the SAC code is a 6-digit number while the HSN code is an 8-digit code.

Where Should I Mention the HSN/SAC Code?

Taxpayers are required to mention the HSN for goods / SAC for services code at all of the following instances:

1. Registration for GST : Every business subject to GST will be required to disclose the category of products and services they deal with. Therefore, it is necessary to provide the exact HSN/SAC code while registering.
2. GST Rate : If the taxpayer is aware of the HSN/SAC code for goods and services, he can quickly determine the GST applicable rate.
3. GST Invoice : When a seller generates an invoice for services and goods, he must include the HSN/SAC code in the invoice, which is based on the total turnover of his business.
4. GST Returns : The HSN Summary must include the GST Return that is submitted by the taxpayer. The summary includes information about the products and services that were sold and categorized according to the reported HSN/SAC.

Why are HSN and SAC Codes Important for Business?

1. Businesses can use the HSN/SAC codes to determine the right GST rates that apply to particular goods and services.
2. It is mandatory to mention these details for registration.
3. These codes help with the identification of specific items and services among the many others that are offered.

FAQs on the differences between HSN code and SAC code

1. Is it necessary to include the HSN code in the invoice?

Taxpayers classify their commodities using HSN codes during the filing of GST returns. Dealers or taxpayers are only required to include the HSN code in an invoice if their annual revenue exceeds 1.5 Crores.

2. Do all countries use the same HSN code?

The World Customs Organization is responsible for developing the HSN (Harmonized System of Nomenclature). The products are categorized using HSN codes. All of the nations that are under the WCO have similar HS codes. They use a six-digit HSN number for their products, but some other nations use 8 code to sub classify a product or group of products.

3. What makes HSN codes unique?

Each HSN code for a product is unique. All products and services offered by HSN are separated into 21 sections and 99 chapters. There are 1244 headers and 5244 subheadings under the 99 chapters. The HSN code rules are used to generate 8-digit code that uniquely identifies each item used for trade or commercial purposes.

4. Does every company need to get an HSN code or not?

No, HSN codes do not apply to industries. These industries include-

• Company with revenue under 1.5 crore INR.
• Company that has a GST composition scheme registration.

5. Do we need HSN code while filing a GST return?

Yes, as it will be challenging for the company to add every single dealer detail. HSN code is an option for businesses that will help them save time. However, when filling out the details for the GST Return, firms must carefully choose the HSN code.