Table of Contents
- What is HSN Code?
- Amendments in the System
- How To Obtain HSN Code List India through accessing the HSN Code Finder?
- Scope of Affirming HSN Code in India
- Structure of the HSN Code in India
- Let Us Understand the Construction of the GST HSN Code List
- Application of the Code in India
- What If You Wrongly Used The HSN Code?
- What is SAC?
- Format of SAC
- Difference Between SAC and HSN code
What is HSN Code?
HSN stands for "Harmonized System of Nomenclature". It's an internationally standardized system for naming and classifying traded goods. Developed by the World Customs Organization (WCO), HSN codes are used by over 200 countries and regions to facilitate international trade
Amendments in the System
This is one of the essential changes in the GST Rule. As per the GST Notification issued by CBDT, taxpayers must incorporate the GST HSN code in their tax invoice for designated products. Earlier, it was mandatory to have only the GST invoice for taxpayers with a turnover of more than five Crores. But now, the HSN code for GST is compulsory for all tax invoices.
Initially, taxpayers were required to present HSN-wise invoice amounts but presently are required to state the HSN code plus the rate-wise taxable amount and tax volumes in Table 12 of GSTR-1.
Two hundred thirty-three amendments have been made in codes that each country has begun to follow since 1/01/2017. These amendments include:
- The Agricultural sector (85)
- The Chemical sector (45)
- The Wood sector (13)
- The textile sector (15)
- The base metal sector (6)
- The machinery sector (25)
- The transport sector (18)
- Other miscellaneous sectors (26)
How To Obtain HSN Code List India through accessing the HSN Code Finder?
- Explore By Product Title: Type the name of your good, and you will get suggestions for the most appropriate four-digit in the HSN Codes list. Hit search for all results if you don’t get the required code for your product. Click on the four-digit code to receive six and eight-digit code specifications for export-import views, as well as the HSN code with GST Rate.
- Explore by HSN Code: Type the first two or first four digits of the HSN Code. Click on the wanted outcome to get more knowledge regarding the HSN code.
Scope of Affirming HSN Code in India
Following GST implementation, the enactment of the HSN code in India brings the country to par with the other countries following HSN for years. India adopted the HSN code to standardise GST. This has also minimized the cost related to international trade as it will bring harmonization in trade processes.
The HSN will encourage each taxpayer in India to explore the GST rate by accessing the code. Subsequently, the system will automatically determine the tax rate relevant to the products under the GST, hence shortening and clarifying the trade-related methods in India. That is why it is obligatory to consider the correct search HSN codes throughout the GST Return filing under GST.
Structure of the HSN Code in India
It consists of two digits each for the Chapter, Heading and Subheading so accordingly
- Chapter: Under the HSN module consists of 99 chapters.
- The Chemical sector (45)
- Heading: Under those chapters, there are 1244 headings.
- Subheading: Under these headings consists 5224 subheadings
- Regional Tariff*
- National Tariff*
The first six digits of the code list can not be modified as per the guidelines issued by WCO. However, the customs administration can change the Regional Tariff and National Tariff.
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Application of the Code in India
Notification No. 78/2020 –Central Tax, dated 15 October 2020 was published by the Central Board of Indirect Taxes and Customs to inform that the implementation of the HSN code is mandatory.
What If You Wrongly Used The HSN Code?
If you have stated an inaccurate code as an exporter, it can lead to shipment difficulties during customs review. There can be problems like denial of import opportunities, heavy custom duty assessments, non-compliance punishments etc.
If you have used an incorrect HSN Code under GST, the buyer will not be able to claim his input tax credit. As per Section 31, an invoice must be flawless in all phases, including accurate HSN Code classification for declaring the input tax credit.
What is SAC?
Service Accounting Code (SAC) is different from the International HSN codes in several designs. The Central Board of Indirect Tax issues SACs to classify each service to identify the applicable tax rate on the respective services. These SACs are used to generate invoices for the services rendered, and the Servicing Accounting Code is used to classify services instead of goods. All services commence with the number 99, which recognizes the code as a SAC.
Services and Accounting Code (SAC) codes are organized according to the Harmonized System of Nomenclature, a universally acknowledged practice for collecting and codifying all the products in the world. This mode permits the acquiescence of GST based on international norms. It will provide a typical structure to the government for the excellent collaboration of data related to sales and purchases and analyze the same.
Format of SAC
The SAC code is a unique six-digit number that contains two numbers each for
- Chapter
- Heading
- Sub-heading
Let us explain this with an illustration. The SAC code for Prevailing construction services of mines and industrial plants is 995425 which consists of
- 99 is the code that indicates the chapter and constantly continues every time
- 54 represent civil engineering works under the heading
- 25 is for standard construction services for plants and mines under the subheading
Difference Between SAC and HSN code
| S.No | Parameters | HSN | SAC |
|---|---|---|---|
| 1 | Full-Form | Harmonized System of Nomenclature | Services Accounting Code |
| 2 | Used For | It assists in the description of GST Rates relevant to goods. | SAC is practised in recognizing GST rates relevant to services. |
| 3 | Structure | 8 Digit Code | 6 Digit Code |
GST Search by Name, GST no Verification, Indian Online GST Calculator, GST Filing Status
Frequently Asked Questions
What does HSN stand for?
HSN stands for Harmonized System of Nomenclature.
If all the business has to get the HSN code or not?
No, HSN codes are not applicable to all the industries. These industries include
- Any business whose turnover is less than 1.5 crore INR.
- Any business which is registered under GST composition scheme.
Is HSN code is required while GST Return filing?
Yes, as it will be difficult for the business to enter each and every detail of the dealer. Businesses can opt for HSN code which will help to save more time. But businesses shall carefully choose the HSN code while filing the details in the GST Return.
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Why is it necessary to follow the HSN code?
HSN code provides standardization and global acceptance of the goods. Under GST regime it is mandatory for all the business on which HSN system is applicable to get HSN code so as to levy the proper rate of taxes on them set by the concerned authorities in India.
Who needs to use HSN codes?
Any business registered under GST supplying taxable goods must use HSN codes on their invoices.
What are SAC codes?
SAC stands for Service Accounting Code. As mentioned earlier, SAC codes classify services under GST, similar to how HSN codes classify goods.
Are HSN codes mandatory for GST invoices?
Yes, HSN codes are mandatory for GST invoices issued for taxable goods. Not including the HSN code can render your invoice invalid for tax purposes.
Why is knowing your product's HSN code important under GST?
An HSN code is like a product's fingerprint in the GST system. It determines the GST tax rate applicable to your product, impacting your tax liability and invoice validity.
How can I find my product in HSN list and its relevant HSN Code?
There are multiple ways to locate your product's HSN code:
- GST portal: The GST portal offers an HSN code search tool based on product description.
- Government resources: Government websites like the Central Board of Indirect Taxes and Customs (CBIC) provide HSN code lists.
- Professional guidance: Consult a tax advisor or accountant for assistance in identifying the correct HSN code for your product.
What is UQC in GST?
UQC stands for “Unit of Quantity Code”. It specifies the unit in which a good or service is measured for GST purposes (e.g., kilograms, meters, pieces). Knowing the UQC is essential for accurate tax calculations and reporting.
What is the difference between an HSN code and a SAC code?
- HSN codes: Primarily used for classifying goods traded internationally.
- SAC codes: Specifically designed for classifying services under GST in India.
Both HSN and SAC codes are six-digit codes, but they serve different purposes within the GST framework.
What is "aggregate turnover" under GST?
Aggregate turnover refers to the total value of all taxable supplies made by a business in a financial year. It plays a role in determining GST registration requirements and filing obligations.
Where are HSN codes required?
HSN codes are typically 6 digits long. Some countries might use additional digits for further product categorization, but the core code remains six digits.
- 4-digit HS code: Represents a broader product category.
- 6-digit HSN code: Provides a more specific product identification within the 4-digit category.
Think of it like a library: the 4-digit code is like a section (e.g., fiction), and the 6-digit code pinpoints a specific book within that section.
HS vs. HSN code: Are they the same?
Yes, HS and HSN codes are the same. HSN simply stands for "Harmonized System of Nomenclature," and both terms refer to the standardized system for classifying traded goods.
How to add HSN codes on the GST portal?
The GST portal itself doesn't require adding HSN codes directly. However, you need to ensure your product HSN codes are correctly reflected on your invoices uploaded to the portal.
Is a GST bill valid without an HSN code?
No, a GST bill is not valid without an HSN code for taxable goods. The HSN code is crucial for determining the applicable tax rate and ensuring invoice compliance.
Are HSN codes the same across all countries?
While HSN codes are based on a global system, some countries might add additional digits for further product classification specific to their needs. However, the core six-digit HSN codes remain consistent across most countries.