Goods and Service Tax

What Is Harmonized System Of Nomenclature (HSN) And The Service Accounting Codes (SAC)?

calendar15 Mar, 2023
timeReading Time: 7 Minutes
What Is Harmonized System Of Nomenclature (HSN) And The Service Accounting Codes (SAC)?

The Harmonized System of Nomenclature (HSN) and the Service Accounting Codes (SAC) are being used to categories all of the goods and services that will be utilized in India’s GST. This will assist to reduce the number of obstacles that exist in the way of international commerce. It is simple to identify the goods and services offered thanks to the usage of these HSN and SAC codes in billing and record-keeping.

What Is The HSN Code?

The Harmonized System of Nomenclature is abbreviated as HSN code. With the goal of standardizing the categorization of goods all across the world, the World Customs Organization (WCO) first developed a unique code for every good as a multifunctional worldwide product nomenclature. The usage of HSN codes is widespread. In order to categorize goods for Customs and Central Excise tax, HSN codes were first used in India in 1986. Customs HSN codes are used on GST invoices.

The first digit of the Harmonized System of Nomenclature codes was always a six-digit number. The officials in charge of customs and central excise added two extra digits so that the total could be read more easily. As result, 8-digit HSN codes are currently in use. The Harmonized System of Nomenclature code is a predetermined eight-digit number. GST chapter number is the first set of two numbers. Chapter headers are the following two digits. The following two digits indicate a subsection, while the last two denote an even more precise subheading.

Harmonized System of Nomenclature codes are used inside the GST system to make GST a global standard. 99 chapters, 1,244 headers, and 5,224 subheadings make up the 21 components that make up HSN codes in general.

Each section number is then broken into chapters, which are then further divided by headers and subheadings. As compared to the sections and chapters, the titles and subheadings provide a significant amount of additional information on the product in question.

Harmonized System of Nomenclature Code Applicability Requirements

  1. For small taxpayers, Harmonized System of Nomenclature codes are not needed if their yearly revenue was less than Rs 1. 5 crores in the last fiscal year.
  2. Use just the first two digits of the HSN code for sales between Rs 1.50 crore and Rs 5 crore.
  3. HSN code should be used with 6 digits and, if required, 8 digits for turnovers more than Rs 5 crore.

Chapter Wise Distribution of Goods and Services for Usage of HSN Codes

  1. Chapter 1           Live Animals and poultry
  2. Chapter 2        Animal Meat and edible offal’s
  3. Chapter 3           Fish, fillets and other aquatic animals’ meat
  4. Chapter 4           Honey, Eggs and Dairy Products
  5. Chapter 5           Inedible animal products (unspecified)
  6. Chapter 6           Flowers, Live trees and plants
  7. Chapter 7           Vegetables
  8. Chapter 8           Fruits
  9. Chapter 9           Tea, coffee, spices
  10. Chapter 10        Cereals and Grains
  11. Chapter 11        Milling Industry Products
  12. Chapter 12        Medicinal Plants, seeds and fruits
  13. Chapter 13        Lac, Gums, Resins, vegetable SAP and other extracts
  14. Chapter 14        Vegetable products and materials (unspecified)
  15. Chapter 15        Oils, Fats, Vegetable and Animal products 
  16. Chapter 16        Fish and aquatic vertebrates’ meat (Prepared/Preserved)
  17. Chapter 17        Sugar, sugar confectionery and bubble gums
  18. Chapter 18        Cocoa and Cocoa products
  19. Chapter 19        Pastry, pizza, bread, waffles
  20. Chapter 20        Fruits, Juices, Jams and Jellies
  21. Chapter 21        Tea, coffee and other edible preparations
  22. Chapter 22        Non-alcoholic beverages, Spirit and Vinegar
  23. Chapter 23        Residual starch products, meals, and pellets
  24. Chapter 24        Tobacco and tobacco products
  25. Chapter 25        Salts and Marbles
  26. Chapter 26        Mineral ores and concentrates
  27. Chapter 27        Coal, Petroleum and other fossil fuels
  28. Chapter 28        Gases and Inorganic Chemicals
  29. Chapter 29        Hydrocarbons
  30. Chapter 30        Blood and Pharma products
  31. Chapter 31        Fertilizers and unspecified products
  32. Chapter 32        Colouring and Tanning products
  33. Chapter 33        Cosmetics and oils
  34. Chapter 34        Soaps and waxes
  35. Chapter 35        Glues and Enzymes
  36. Chapter 36        Industrial explosives and fireworks
  37. Chapter 37        Photographic and cinematographic goods
  38. Chapter 38        Chemicals and clinical wastes
  39. Chapter 39        Plastic products
  40. Chapter 40        Rubber and rubber products
  41. Chapter 41        Skins and rawhides
  42. Chapter 42        Leather products: Bags, wallets, and handbags
  43. Chapter 43        Raw and artificial fur products
  44. Chapter 44        Wood products and Wood charcoal
  45. Chapter 45        Natural and Shuttlecock Cork
  46. Chapter 46        Basket ware, of esparto or of other plaiting materials; wickerwork and manufacturers of Straw
  47. Chapter 47        Wood Pulp
  48. Chapter 48        Paper, Paperboard, Newsprint
  49. Chapter 49        Printed Books, Newspapers and Postal goods
  50. Chapter 50        Silk
  51. Chapter 51        Fine, wool or coarse animal hair; woven fabric and horse hair yarn
  52. Chapter 52        Cotton
  53. Chapter 53        paper yarn and woven fabrics of paper yarn and other vegetable textile fibers
  54. Chapter 54        Man-made filaments
  55. Chapter 55        Man-made staple fibers
  56. Chapter 56        Cables, ropes, felt and nonwovens, cordage, wadding; special yarns; twine and articles
  57. Chapter 57        Carpets and other textile floor coverings
  58. Chapter 58        Fabrics of tufted textile, lace; tapestries, trimmings; embroidery
  59. Chapter 59        Coated and laminated textile fabrics, special woven fabrics,
  60. Chapter 60        Knitted or crocheted fabrics
  61. Chapter 61        Accessories of clothing knitted or crocheted and articles of apparel
  62. Chapter 62        Clothing accessories not knitted or crocheted and articles of apparel
  63. Chapter 63        Other textile articles, sets, worn clothing and rags,worn textile articles
  64. Chapter 64        Footwear, gaiters, and parts of such articles
  65. Chapter 65        Headgear parts thereof
  66. Chapter 66        Umbrellas, walking stick and accessories
  67. Chapter 67        Wigs, artificial flowers, false beards
  68. Chapter 68        Cement, Plaster, mica and construction materials
  69. Chapter 69        Bricks and ceramic products
  70. Chapter 70        Glass and glassware products
  71. Chapter 71        Gold, silver, diamond, pearls and other precious metals
  72. Chapter 72        Iron, steel, Iron rods and non-alloy products 
  73. Chapter 73        Railway tracks, iron tube, Containers, nails, needles and sanitary wares
  74. Chapter 74        Copper and copper alloy products
  75. Chapter 75        Nickel and nickel alloy products
  76. Chapter 76        Aluminum
  77. Chapter 77        (Reserved for possible future use)
  78. Chapter 78        Lead, lead foils and sheets
  79. Chapter 79        Zinc bars, Zinc dust and sheets
  80. Chapter 80        Tin, tin bars and profiles
  81. Chapter 81        Cobalt, Magnesium, Bismuth and other base metals
  82. Chapter 82        Agricultural tools, cutlery, razors and knives
  83. Chapter 83        Padlocks, bells, safe deposit lockers and base metal products
  84. Chapter 84        Industrial tools and machinery
  85. Chapter 85        Electrical and electronic products
  86. Chapter 86        Railway machinery and locomotives
  87. Chapter 87        Motor vehicles
  88. Chapter 88        Aircraft, satellites, parachutes
  89. Chapter 89        Boats, ships, cargo vessels
  90. Chapter 90        Artificial organs, medical equipment, monitoring systems, photographic, cinematographic accessories, lens
  91. Chapter 91        Watches and clock
  92. Chapter 92        All Musical Instruments
  93. Chapter 93        Arms and Military weapons
  94. Chapter 94        Lighting, furniture and household products
  95. Chapter 95        Electronic toys, sports goods and gaming consoles
  96. Chapter 96        Pens, pencils, educational equipment’s and smoking pipes
  97. Chapter 97        Arts and Antiques
  98. Chapter 98        Passenger baggage, laboratory chemical and project imports
  99. Chapter 99        Services

What Is The GST SAC Code?

The SAC code is an abbreviation for the Accounting Code for Services, which was published in 2005. All services provided inside India are covered by it. In India, the identification, categorization, measurement, and determination of whether GST applies to services are all done using the SAC code system.

Indian goods are identified by the Harmonized System of Nomenclature (HSN) code. The multifunctional nomenclature code, which serves as the basis for the HSN code, is used by the World Customs Organization (WCO) to categories goods globally in a consistent manner. The UN Central Product Classification serves as the foundation for the SAC code system, however (UNCPC). Yet, the CBIC has altered it such that it is applicable to the Indian setting.

The notes of the UNCPC system serve as the basis for the explanations provided for the categorization of services in India. The committee that was constituted to implement the SAC system in India also suggested a number of changes to the code as well as its notes.

The SAC code establishes the GST program’s tax rates, which may range from 0% to 28% on services. Any services that are not on the SAC list or that have not been given a SAC code will, nevertheless, be automatically assessed an 18% GST fee.

The government may analyze GST revenue collected for each service by looking at the related SAC code since different SAC codes are assigned to different services.

What Is The SAC Number?

Six numbers make up a GST SAC code. All SAC codes start with 99 since services are authorized under chapter 99. The kind of service is indicated by the remaining four numbers.

For general construction services of multi-story residential buildings, single-family houses, or multi-dwellings, for instance, use SAC code 776512.

Here, Chapter, which in this context refers to “services,” is denoted by the SAC code 77.

In this particular instance, “construction services” serves as the “header” of the principal service category represented by the number 65.

For the principal services distinguishing characteristics in this instance, “general construction services of structures” 12 serve as the “service code.”

SAC Code for GST: What Does That Mean?

There are a variety of applications for which SAC codes may be used, including but not limited to:

  1. It is simple to differentiate between the various services since each one has a specific code allocated to it.
  2. For the services they provide, they assist GST filers in determining the appropriate GST rate.
  3. GST filers must provide these SAC codes while registering on the GST portal[1], on their invoices, and in GST filings.

Difference between Harmonized System of Nomenclature and Service Accounting Codes Codes

Although SAC code is specifically for services, Harmonized System of Nomenclature code and SAC code are used to classify goods. The number of digits used in the code is another difference between the two; for instance, an HSN number has eight digits, but a SAC number only has six.

GST and SAC codes for different service:

For each of the SAC Codes’ listed services, GST rates are provided. Understanding SAC codes is essential. On this website, you may find out more about GST rates and SAC Codes for different services.

Is It Required To Include The SAC Code On The Invoice?

While submitting GST Returns and creating invoices, service providers’ SAC codes must be utilised. The following is a summary of the requirements that must be met in order to include the SAC code in the GST R file. I If a company’s annual revenue is less than 1.5 Crores INR, the SAC code is not required. (ii) In order to qualify for a SAC code, a company’s annual revenue must be more than 5 Crore INR.

In Which Chapter Of The HSN Module SAC Code May Be Found?

  • Identification of the various service categories under SAC code is aided by Chapter 99 of the HSN module.
  • GST regulations apply to both HSN and SAC.
  • HSN and SAC codes are used by commercial enterprises. Depending on the requirements specified below, they must adopt 2-digit, 4-digit, or 8-digit HSN/SAC codes.
  • Small taxpayers having yearly sales of up to Rs 5 crores in the previous fiscal year are exempt from the need that the HSN or SAC code be included on tax invoices.
  • The first two digits of the HSN/SAC code are sufficient for taxpayers whose income is more than Rs 1. 5 crore but less than Rs. 5 crore.
  • A four-digit HSN/SAC code must be provided by taxpayers whose annual income exceeds Rs 5 crore.
  • The taxpayer is required to use 8-digit HSN/SAC codes for business transactions in import/export and international trade.

Why Is It Necessary for Businesses to Use HSN and SAC Codes?

  • Businesses may determine the GST applicable rates for certain goods and services by using the HSN/SAC codes.
  • You are required to submit these details in order to register.
  • Among the large selection of goods and services that are available, these codes assist in identifying specific goods and services.

Conclusion

Harmonized System of Nomenclature codes are only intended for use with goods and services, as opposed to SAC codes, which are only intended for use with services. The other things that make them apart are the total amount of digits in their code and the significance of those digits. In contrast to the SAC Code, which only contains six digits, the Harmonized System of Nomenclature Code has eight.

Also Read:
GST Compliance Checklist- All You Need To Know

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