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Know all about HSN and SAC code for GST before you apply

HSN (Harmonised System of Nomenclature) is an internationally accepted product coding system. In India, HSN coding is currently used under Excise, Customs, and state Value Added Tax (VAT) laws and is now also used under Goods and Services Tax (GST) law for classification of products/goods and the Service Accounting Code (SAC) system for services. Read on to know more...
Written by:
Shivam Srivastava
Published on
27-Aug-19

Many states in India presently have their own systems for classifying their goods and services for tax rate determination. However, with the coming Goods and Services Tax (GST) regime, there's a strong desire for more uniform classification at not just on the national level but internationally.  

Hence they move to the Harmonised System of Nomenclature (HSN) for goods and the Service Accounting Code (SAC) system for services.

HSN is a multipurpose international product nomenclature that has been developed by the World Customs Organization (WCO). HSN clearly standardizes the classification of merchandise under sections, chapters, headings, and subheadings. This provides a six-digit code for a commodity (two digits each representing the chapter, heading, and subheading).

India, a member of WCO since 1971, has been using HSN codes since 1986 to classify commodities for Customs and Central Excise. Now, the Customs and Central Excise added two more digits to make the code more precise, resulting in an eight-digit classification.

The main purpose of HSN is to classify goods & services from all over the World in a systematic and logical manner. This brings in a uniform classification of goods and services which facilitates international trade.

What is HSN code for GST?

HSN is applicable in India after the implementation of GST. However, India has already been using HSN system in the Central Excise and Customs regime. 

HSN is a much more detailed classification that added another two digits to the 6-digit structure. There is a requirement to mention HSN code of a specific item in tax invoice under GST. 

Provisions related to HSN under GST are mentioned below:-

  • Taxpayers whose turnover is Rs. 5 crore or more shall use 4 digit HSN code

  • Taxpayers whose turnover is above than Rs. 1.5 crore but below Rs. 5 crore shall use 2 digit HSN code

  • Taxpayers whose turnover is below Rs. 1.5 crore are not even required to mention HSN code in their tax invoices.

  • In the case of imports/exports, HSN codes of eight digits is compulsory, as GST has to be compatible with the international standards and practices

  • The draft list of HSN codes has been released and it is easily available in the public domain & can be assessed on the government GST website.

  • Under the GST laws, the services will be classified under the Services Accounting Codes (SAC)

The basics of HSN classification

HSN has 21 sections, 99 chapter, 1,244 headings, and 5,224 subheadings. 

Every Section is divided into Chapters. Every Chapter is divided into Headings. Every Heading is divided into Sub-Headings. However, Section and Chapter titles describe broad categories of goods, while headings and subheadings describe the products in detail.

Sections and chapters are completely arranged in order of a product's degree of manufacture or in terms of its technological complexity. Natural products like animals and vegetables appear in the earlier sections; man-made or technologically advanced products like machinery appear later.

Some HSN codes even use dashes. A single dash (-) at the beginning of a description denotes an article that belongs to a group that is covered under a heading. A double dash (--) indicates that the article is a sub-classification of the preceding article that has a single dash. Similarly, a triple dash (---) or quadruple dash (----) indicates the article is a sub-classification of the preceding article that has a double dash or triple dash.

Like goods, services are also classified uniformly for recognition, measurement and taxation. Codes for services are called Services Accounting Code or SAC. GST has included the service tax, which covers all kinds of services at a national rate of 18%, apart from other rates in some cases. 

Since GST is a combination of goods and services both, an equable classification for services is also required. SAC will remain the same under the GST regime. The rates for services are fixed in five slabs namely 0%, 5%, 12%, 18%, and 28%. 

Why it is necessary to follow HSN Codes and SAC Codes?

HSN codes are an internationally recognized system of codifying and classifying all the products in the World. It will comply GST with the international standards and also ensures proper levy of taxes. HSN gives a proper systematic and logical way of classification, thereby reducing the chances of any misinterpretations. 

Moreover, a common structure enables governments of countries to collaborate the data of purchases and sales of commodities and also analyse the same. After this analysis, they can decide on macro-economic policies relatable to important commodities.

Where to find the list of HSN Codes for GST?

HSN Codes and SAC are available on the Ministry’s website. They are controlled by the ACES website, which was earlier used by the Central Board of Excise and Customs (CBEC) for its operations.

Here is a list of GST Rate with HSN Codes List, which can be downloaded from here.

Here is a list of Full HSN Codes list with Product Name in PDF format. 

Here, you can find and Download Full HSN Codes list in PDF Format.

Here, you can find and download GST HSN Code list in Excel format .

However, you can also find the list of HSN Codes on these websites here.

Why HSN Code is important under GST?

When goods and offerings are recognised via their specific HSN codes, which are globally acceptable, the identification of goods becomes easy, and resultantly possibilities of misinterpretation tend to reduce. 

While filing GST returns online, HSN code in respect of the supply of goods and Services Accounting Code in respect of the supply of services will have to be uploaded.  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 and will reduce the efforts. So, there will be no need for entering the description of the goods or services while filing GST returns.

Also, Dealers have to be careful in choosing the correct HSN/SAC code while migrating to GST or making a fresh registration.

The relation of the HSN Code with GST Rate

For a correct and accurate levy of the GST rates which are prevalent in India, the correct HSN or SAC code is necessary at the time of GST Return filing. This will ensure a seamless compliance of the GST rules.

How to find your product in HSN list and its relevant HSN Code?

ACES or other websites have the functionality of searching your product or service and searching its relevant HSN / SAC Codes. 

Even there are some good accounting software which can automate most of these things and can help you to find the product and its HSN code.  Like Profit Books accounting software offers a way to allocate right HSN code to the product by using a database search.

Is the HSN Code compulsory for all the businesses?

For all businesses that deal with the import/export of good it is mandatory to use the 8-digit HSN Code. All Indian manufacturers who have an annual turnover of less than INR 1.5 crores, are exempted from mandatorily using the HSN Codes for their goods. 

Apart from them, the dealers registered under the Composition Scheme of the GST are also exempted from using HSN Codes.

HSN Code of Work Contract for GST

Under GST laws, the definition of “Works Contract” has been restricted to any work undertaken for an “Immovable Property” unlike the earlier VAT and Service Tax provisions where works contracts for movable properties were also considered. The Works Contracts has been defined in Section 2(119) of the CGST Act, 2017. 

As per Para 6 (a) of Schedule II to the CGST Act, 2017, works contracts as defined in section 2(119) of the CGST Act, 2017 shall be treated as a supply of services. Thus, there is a clear demarcation of a work contract as a supply of service under GST. 

Since, Work Contracts fall under the category of "Services" and the code for services is known as the "Service Accounting Code (SAC)". Because the HSN code is applicable to only products. The SAC for Work Contracts is 9954. Here, the first two digits i.e. 99 are common for all the services and the next two digits i.e. 54 represent the nature of service.

Service Accounting Code or SAC is the nomenclature adopted by the GST 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. Hence, the GST network will automatically fetch the details of the services based on the assigned codes.

However, you can easily find the HSN Code of Work Contract or any other service under GST through online which is available here.  

HSN Code for electrical goods in GST

The electrical goods in GST come under HS code 85 which includes all the equipments of electrical machinery. Chapter 85 covers Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers and parts and accessories of such articles. 

More specifically, the electrical goods comes under the HS Code 8546 with 18% GST Rates which states Electrical insulators of any material. 

You can find here HS Code of Electrical Goods and also get revised HS code for any product after GST in India at HSN Code List India 2017.

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