The World has been thriving ever since International Trade and Commerce came into picture. There are thousands of products being transacted around the World, some specific to a country and some relating to most of the countries. It has thus become imperative to have a common understanding of the goods being traded and countries speaking the same language, irrespective of their national boundaries. Hence came the inception of HSN Codes, which are an integral part of International trade and commerce today.
In this article, we’ve explained what is HSN code, what is SAC? Format of HSN code and how to use HSN under GST in India.
What is HSN Code in the first place?
Harmonized System of Nomenclature, or HSN, was conceived and developed by the World Customs Organization (WCO) with the vision of classifying goods from all over the World in a systematic and logical manner. It is a six digit uniform code that classifies more than 5,000 products and is accepted worldwide. These set of defined rules is used for taxation purposes in identifying the rate of tax applicable to a product in a country. It is also used to determine the quantum of product exported or imported in and out of a country. It is a crucial feature to analyze the movement of goods across the World. It is a combination of different sections, further drilled down to chapters, which are further classified into headings and sub-headings. The resultant figure is the six-digit code.
HSN is widespread and is adopted in more than 200 countries, covering a staggering 98% of goods in the World. It is by far, the best logical system of classification and identification adopted in International Trade. It has helped in reducing efforts and costs related to complex procedures of International Trade.
HSN in India
Now that we have been through the concept of HSN, we now move on to understanding HSN from the Indian context.
India is all set to have its very own Goods & Services Tax or GST, which applies to all goods and services alike. It shall subsume many indirect taxes and reduce the burden on the end consumer. India has already been using HSN system since 1986 in the Central Excise and Customs regime. It is a much more detailed classification that added another two digits to the 6-digit structure. Indian manufacturers under GST shall be required to follow a 3-tiered structure of HSN.
- Those with a turnover of less than INR 1.5 Crores need not follow HSN
- Those with a turnover exceeding INR 1.5 Crores but less than INR 5 Crores shall be using the 2 digit HSN codes
- Those with a turnover exceeding INR 5 Crores shall be using the 4 digit HSN codes
- Those dealers who are into imports or exports shall mandatorily follow the 8 digit HSN codes
Understanding the digits of HSN Code
The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 sub-headings. The commodity’s manufacturing and technological complexity define the section or chapter to which it belongs. As such, all natural commodities like vegetables, animal produce, etc. belong to the earlier sections, whereas industrial machinery is seen at the later stages.
For e.g. – Processed cotton appears later whereas uncombed, normal cotton appears earlier.
The sections are categorized on a broader perspective. Chapters, on the other hand, have a much more specific categorisation. Like Section 11 covers all kinds of textiles and textile articles, whereas Chapter 62, which falls under Section 11 is expressly for accessories for men and women.
Going further down the chain, chapters have been sub-classified into headings and sub-headings. The headings focus on specific types of products under the Chapters. Continuing with the above example, Chapter 62, heading 13 covers all kinds of handkerchiefs, whereas heading 14 covers scarves and shawls of different types. These headings have a product attached to it.
In the above example, handkerchiefs made of other textile materials are under the heading 13 under Chapter 62. The HSN code for the product is 62.13.90, where 90 is the product code for handkerchiefs made of other textile materials. For a deeper classification, Indian GST has 2 more digits to these commodities. Where the handkerchiefs are made from a human-made fibre, then the HSN code becomes 220.127.116.11. Similarly, 18.104.22.168 belongs to handkerchiefs made out of silk or waste from silk.
When a classification of a product takes places in the above structure, the General Interpretation Rules have to be applied. The trade parlance of the product must be checked first while classifying the product and not its technological manipulation. Where the product is classified on the very first level, then there is no need to drill down further in the strata below.
Service Accounting Codes (SAC)
Similar to the International HSN Codes, India has adopted a Service Accounting Code (SAC) for all its services. GST will subsume the service tax, which covers all kinds of services at a national rate of 15%, 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.
Here is a list of SACs announced by Government.
Top 5 FAQs on HSN
1) Is HSN Code is mandatory for all the dealers?
A: HSN codes shall not be used mandatorily in the following cases:
- Dealers who have an annual turnover of less than INR 1.5 Crores
- Dealers registered under the Composition Scheme of GST are exempted from the usage of HSN Codes
2) Why is it necessary to follow HSN Codes and SAC Codes?
A: HSN codes are internationally recognized system of codifying and classifying all the products in the World. It will make GST compliant with the international standards and ensure proper levy of taxes. HSN gives a systematic and logical way of classification, thereby reducing the chances of any misinterpretations. Further, a common structure enables governments of countries to collaborate data of purchases and sales of commodities and analyze the same. Post this analysis, they can decide on macro-economic policies relatable to important commodities.
3) Has the Government notified HSN Codes and Service Accounting Codes?
A: Yes. 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 HSN Codes and Rates for Goods.
Here are SAC Codes and Rates for Services.
4) How can I find the product in HSN list and its relevant HSN Code?
A: ACES or other websites have the functionality of searching your product or service and its relevant HSN / SAC Codes. ProfitBooks accounting software offers a way to allocate right HSN code to the product by using a database search.
5) Why are HSN Codes important at the time of filing GST returns?
A: 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 thereby. Dealers have to be careful in choosing the correct HSN/SAC code while migrating to GST or making a fresh registration.
In order to minimise errors while filing GST returns, its important to know the right HSN code for the product or service you are selling. A good accounting software can automate most of these things and can help you to reduce the manual errors.
Right from creating invoices in GST format to filing GST returns online, ProfitBooks simplifies everything. Its simple to use and trusted by thousands of business owners and accountants.Try ProfitBooks Free Today
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Then While filing gstr-1, SAC code is required to enter in the place of HSN?
is it mandatory to mention “hsn” summary if annual turnover is less than 1.5 cr for retailer(retailer sells goods both registered or unregistered person)
Not able to re-submit documents for new registration:
I have applied for new registration for my private limited company but to clarify the query raised by the GST official, I need to submit a document. But while uploading the document, error message appearing. What to do now, can any one guide me please?
can i buy a product of a particular hsn code and split it and sell in different hsn codes
this board is dead
As ecom operator or under oidar do I file qty return gstr1 and gstr8 if turnover under 1.5 crores. So for web sites doing job portal services, matrimony services , hotel room booking services , property listing services use multiple sac codeand ecommerce s for services revenue from different websites or is there any common SAC for websites . In case website also have merchants supplying goods and services what is sac for ecommerce websites invoicing services for listing these items, revenue commission from sellers and advertising revenue, job listing revenue, matrimony listing revenue, property listing revenue. One SAC code or multiple SAC codes. The babus in GST department and Govt officials have messed up GST with so poor drafting creating complex confusion and frequent changes like price of petrol daily.
I have several websites job listing portal, property listing portal, matrimony listing portal , hotel booking portal and deal portal. Under which GST register category should I register OIDAR or ecommerce. My business model is to only forward booking enquiries to merchant sellers listing on some of my web sites like deal, marry arrangement , learning courses, But i am not invoicing or collecting payment from buyers or shipping. The sellers may accept some enquiries invoce ship and collect payment. Sellers only pay me listing charges and commission after sale. So if I register in ecom since there is no invoice data and also no collection of payment from buyer can I file nil return in gstr8 and in gstr1 my services and commission payment received with invoice or I should register in OIDAR category. But OIDAR is so confusing applicable outside India and contradictory Hotel booking not covered, books not covered , matrimony not covered but all websites have advertising which is covered in OIDAR.
What isSAC code I have to use for web site services like mentioned above job portal, matrimony portal, property portal , Hotel room booking and travel services portal . All websites have advertising revenue which is mentioned in OIDAR.
Also in ecommerce what happens in case of cash on delivery when no payment is collected in advance. GST drafting is so poor and confusing.
Do I have to register in only one state where my office is or I have to register in all Indian states which is ludicrous.
Hello , as you are service provider SAC code applicable to you.
HSN code is for supply of goods
For further clarification whatsapp me on 9819810926
I am service provider so that what is applicable for me HSN code or SAC code, we are providing warehouse maintenance service to party.
form can be downloaded from the portal
as long as tax rate is right , no problem it can be fixed while filing the return
is it compulsory for a general goods supplier selling goods to end consumer to mention Hsn code summary in GSTR-1 if his turnover is less than 1.5 cr
Sir we sell different items of same heading i.e under hsn 5402 we have 15-16 items with different unit of measurement i.e in metres and pcs so in GSTR-1 how we need to show the HSN summary.
Dear Mr. Monish,
Can I have more than one SAC and HSN codes…
hi, what if the HSN/SAC provided on invoice was incorrect and accounted the invoice in ERP , does it impact on my tax filing.
hi , I am manufacturer and My product is related Aeroponic and fogoponic which it’s like a other Agriculture related product where my question is i am unable to get HSN Number to those two product can you guys helpout me to get out from