What are HSN and SAC Codes in GST?
Under the Goods and Services Tax (GST) system in India, every product and service is classified using a standardized coding system. This ensures transparency and helps in applying the correct tax rates across the country.
HSN Code (Harmonized System of Nomenclature)
HSN Code is an international 6-digit (or 8-digit in India) code used to classify goods. It was developed by the World Customs Organization (WCO). Businesses with turnover above ₹5 Crores must use 6-digit HSN codes on their invoices.
SAC Code (Services Accounting Code)
SAC Code is used specifically for the classification of services. All services under GST start with the prefix '99'. Classification is crucial because different services attract different tax slabs (standard is 18%).
Why is finding the correct code important?
- Correct GST Rate: Using a wrong code might lead to paying the incorrect tax amount.
- Input Tax Credit (ITC): Buyers cannot claim ITC if the HSN code on the invoice is incorrect.
- Legal Compliance: Filing GST returns with wrong HSN details can trigger show-cause notices from the department.