Understanding HSN/SAC Codes for Indian Businesses

For any business working in the Goods and Services Tax regime in India, understanding HSN codes and SAC codes or applying them correctly is not merely a matter of fulfilling a legal requirement-it is an important aspect of ensuring bills are correctly prepared, that the right amount of tax is calculated, and GST has been properly complied with.

At first glance, these codes can appear complicated, but that is far from the truth-just like everything is based on common sense—these codes were developed with the intention that they provide uniformity and clarity in respect of classification of goods and services. Any other form of misclassification may have various consequences like levy of wrong tax, imposition of penalties, and reconciliation problems.

Tririd Biz, your trusted accounting and billing software in India, believes that GST compliance can be a little less challenging if it is clear upfront. This comprehensive guide will clarify HSN and SAC codes, show why these matters are of significance to your business, and even walk you through how our software makes managing HSN and SAC codes quite simple.

What are HSN Codes and SAC Codes?

Briefly:

HSN Code (Harmonized System of Nomenclature): These are internationally accepted classification codes for goods. The codes were evolved by the World Customs Organisation (WCO) to classify traded goods the world over systematically. In India, these codes are used in GST to assess the rate of tax applicable to different products.

• Structure: While HSN codes remain international only till 6-digits, India in reality uses an HSN code of 2, 4, 6, or 8 digits depending on the turnover of the business. The more digits the code has, the finer the classification.

SAC Code (Service Accounting Code): In the same manner HSN is structured for goods, SAC codes are used to classify services. These codes are restricted to India and were developed by the Central Board of Indirect Taxes & Customs (CBIC) for service tax purposes, which were subsequently taken over by GST.

• Structure: The SAC code is of 6 digits only; the initial two digits are '99' for services, and the next four digits specify the exact nature of service.

Why are HSN/SAC Codes Necessary for GST Compliance in India?

The primary reasons HSN/SAC codes are mandatory under GST are:

1. Uniform Classification: They ensure that goods and services are classified uniformly across India, preventing ambiguity and disputes regarding tax rates.

2. Tax Rate Determination: Every HSN/SAC code is linked to a specific GST rate. Using the correct code ensures you charge and pay the right amount of tax.

3. Invoice Generation: It is mandatory to mention the HSN/SAC code on GST-compliant invoices, especially for B2B transactions, if your turnover exceeds certain limits.

4. GST Return Filing: HSN/SAC-wise summary of outward supplies (sales) is required in GSTR-1, providing granular detail to the tax authorities.

5. Data Analysis & Policy Making: The government uses these codes to analyze trade data, understand consumption patterns, and formulate economic policies.

How Many Digits of HSN/SAC Code Do You Need to Use?

The number of digits you need to declare depends on your business's aggregate annual turnover in the preceding financial year:

For Goods (HSN):

• Turnover up to ₹5 Crore: 4-digit HSN code (mandatory for B2B invoices)

• Turnover exceeding ₹5 Crore: 6-digit HSN code (mandatory for all invoices)

• Exports & Imports: 8-digit HSN code is generally required.

For Services (SAC):

• All Turnovers: 6-digit SAC code is generally required.

(Always refer to the latest notifications from the GST portal for the most accurate and up-to-date requirements, as these thresholds can be revised.)

How to Find Your HSN/SAC Codes

Finding the right HSN/SAC code relevant to your goods or services is extremely important. Some good ways include:

• GST Portal: The GST portal at times has search methods or links to official HSN/SAC code lists.

• CBIC Website: Lists of HSN codes for goods and SAC codes for services are available on the Central Board of Indirect Taxes & Customs (CBIC) website.

• Industry Associations: Your industry association might have compiled lists or issued guidelines for your particular industry.

• Tax Consultants: A professional tax consultant will assist in determining the correct codes for your particular offerings.

• Through Your Accounting Software: A good smart GST accounting software like Tririd Biz will take away a lot of these worries.

Common Mistakes to Avoid with HSN/SAC Codes

• Using Wrong Codes: It is the commonest mistake, and these wrong codes can lead to wrong tax calculations, penalties, and problems for the customers in claiming ITC.

• Not Updating Codes: As products or services change, or as GST rules change, always ensure your codes are up to date.

• Ignoring Compulsory Requirements: Not mentioning the HSN/SAC code in the invoice, when it is required to do so, or putting in lesser digits than required, with respect to the turnover.

• Confusing Goods with Services: Remember to use the HSN for goods and SAC for services.

• Lack of Documentation: Failure to maintain documentation explaining the basis for assigning a certain HSN/SAC code, especially in the case of complex items.

How Tririd Biz Accounting & Billing Software Simplifies HSN/SAC Management

Managing HSN/SAC codes manually for every product and service can be tedious and error-prone, especially for businesses with diverse offerings. Tririd Biz is designed to take this burden off your shoulders:

1. Product/Service Master Data: Easily store and manage your products and services, each tagged with its correct HSN/SAC code and corresponding GST rate, within our software.

2. Automated Tax Calculation: When you create an invoice in Tririd Biz, the software automatically picks up the HSN/SAC code and applies the correct GST rate based on your master data. This minimizes manual errors.

3. Invoice Printing: Your GST-compliant invoices generated by Tririd Biz will automatically include the required HSN/SAC codes, ensuring you meet legal requirements.

4. GSTR-1 Summary: Tririd Biz helps in generating HSN/SAC-wise summaries for your GSTR-1, streamlining your return filing process.

5. Seamless Data Management: Update codes centrally, and the changes reflect across all relevant transactions, ensuring consistency.

By leveraging Tririd Biz, you can focus on growing your business, knowing that your GST billing and accounting are accurate and compliant with the latest HSN/SAC regulations.

Ensure Compliance, Embrace Simplicity

Understanding HSN/SAC codes is a fundamental aspect of GST compliance for Indian businesses. By dedicating time to correctly classify your goods and services and utilizing smart tools like Tririd Biz, you can ensure accuracy, avoid penalties, and simplify your entire GST filing process.

Ready to streamline your GST compliance with intelligent HSN/SAC management?

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