Understanding key differences between SAC and HSN codes

What is HSN Code?

Harmonized System of Nomenclature, aka HSN code, is an international product classification system. While it was initially proposed by the World Customs Organization (WCO), it is essential for seamless GST compliance as it serves as the classification for goods. With the help of HSN code, business owners can streamline tax processes through categorizing goods, facilitating efficient tax calculation, and documentation. One of the biggest advantages of the HSN code is its ability to deliver accurate determination of GST rates, simplify the process of GST return filing, and further reduce error risks. Moreover, HSN code  makes inventory management much simpler and hassle-free than ever before, along with supply chain operations, which aid in improving the overall efficiency of business operations. Let’s look at the HSN codes under GST. 

• Taxpayers with a turnover of 5 CR INR and above shall use a 4-digit HSN code. 
• Taxpayers with a turnover between 1.5 CR to 5 CR shall use a 2-digit HSN code. 
• Taxpayers with a turnover below 1.5 CR do not require any HSN code. 
• Taxpayers can also view the draft list of HSN codes in the public domain through the government GST websites. 
• Under the GST law, the services will be classified as per the service accounting code (SAC)

What is the SAC Code? 

Any topic related to goods and services tax (GST) would be incomplete without mentioning the SAC code. Originally based on the concept of the United Nations Central Product Classification, this code has been modified in India by CBIC. SAC code focuses primarily on the Indian Taxation Framework. However, if a service or product is not listed in the SAC code, it automatically defaults to 18% GST tax. Let’s understand how the SAC code plays a vital role for businesses. 

• Distinctive Classification 

The SAC code allocates a unique code to different services, which provides a more accurate classification.  

• GST Rate Identification 

Here, the code assists GST taxpayers in identifying applicable GST rates for their services. 

• Compliance Requirement 

 It is mandatory for GST taxpayers to mention SAC codes, invoices, and returns while registering on the GST portal. It ensures compliance with tax regulations. 

• GST collection analysis 
  One of the major benefits of having a SAC code is that it enables the government to analyze GST collection efficiently for each service category. This helps towards a more effective tax administration and revenue management. 

Key differences between GST and SAC code 

Now that we have covered the basics of these 2 codes and how they differ from each other. Let’s understand how these 2 codes differ from each other through a table. 

Aspect	HSC code ( Goods)	SAC code ( Services )
Full form	Hamronized System of Nomenclature	Services Accounting Code
Purposes	Classification of goods	Classification of Services
Used Structure	8 digits (Chapter, Heading, Sub Heading)	6 digits (Service Catogery, Sub Catogery)
Used by	Manufacturers, Traders, Importers,	Service Providers
Example	1006100 ( Rice)	995412 ( Construction Service )
GST determination rate	Helps with GST rate for goods	Helps with GST rates for services
Compliance requirement	Mandatory Based on Turnovers	Vital for all service providers
Global Usage	Used internationally	Mainly used in India
Implementation in India	Based on the turnover threshold	Applied for all services
Common Mistakes	Incorrect classification	Outdated Codes

Importance of HSN or SAC code in GST filing

For business owners today, it becomes mandatory to understand the HSN SAC code full form for a more seamless understanding of GST filing in the country. It also becomes crucial to know the differences between these two codes for a simpler and accurate knowledge of the taxation process. Let’s delve into a deeper understanding of the topic. 

Nature of Classification

While HSN or SAC code can be best described as two sides of the same coin, they are distinguished firmly when it comes to their roles in GST filling. 

• HSN code: This code is used for classifying the goods based on a standardized international system. It evaluates products and tangible items, hence providing a universal structure for a more accurate categorization of domestic and international trade. 
• SAC code: Here, the focus is on the classification of services. Unlike HSN, Service Accounting Code is very specific to the nature of the service it provides. It comes with a more structured framework for a more accurate identification and taxation within the GST system. 

Purpose & Scope 

Both these codes serve different purposes for entrepreneurs regarding their business and products. 

• HSN code: Here, the primary usage for this code is to classify tangible goods like electronics, which facilitate international trade. This process takes place through a standardized system for product identification. 
• SAC code: The services that come under the SAC code include education, finance, hospitality, etc. 

Integrating with GSTR forms 

While they both are necessary procedures towards GST filing, they both play diverse roles in the functioning of an accurate and seamless procedure of the same. 

• HSN code: Here, the HSN code is necessary when it comes to import and export business dealings. This helps with a more accurate record of inventory and invoice generation. 
• SAC Code: Being a mandatory procedure, towards filing a GSTR form, it ensures precise categorization and taxation of various services found under the GST guidelines. 

Finally, as we conclude this topic, understanding the distinctive factors of SAC vs HSN code is an integral aspect of understanding the GST framework. Think of it as the two sides of same coin. The only factor which sets them apart is the purpose it serves. So while it may seem tricky at first, having a good knowledge and understanding on the subject can help business owners to comply with GST registration more effectively. 

For any further doubts or questions regarding HSN & SAC code in gst billing, feel free to Get in touch with us today. 

Frequently Asked Questions (FAQ)

Q – What is the SAC code in GST? 

A – This code is used as a unique identifier to categorize services that fall under Goods and Services Tax.  

Q – Is it necessary to include the HSN code to generate the invoice? 

A – Taxpayers use these codes to classify goods during GST filing. So, integrating this code in the invoice becomes compulsory if the annual revenue exceeds 1.5 CR INR. 

Q – Does the HSN code apply to all countries? 

A – As we all know by now that this code was developed by the World Customer Organization, countries that comply with WCO regulations generally use similar HSC codes. While some country use 6 digit codes, other countries use 8 digit code. 

Q – What is the key difference between HSN and SAC code? 

A – While HSN codes is used for goods, SAC codes on the other hand are used for services. However both help in systematic classification for GST compliance. 

Q -Is the HSN or SAC code mandatory for all businesses? 

A – Both these codes are vital for GST invoices as per government norms. 

Q – How to find HSN and SAC code in GST for related products and services?

A – Business owners can refer to the oficial GST portal, CBIC website or can even consult a tax professional for accurate classification of the same. 

Q – Are there any consequences of using incorrect HSN and SAC codes? 

A – Using incorrect HSN or SAC code could lead to several consequences like GST mismatches, notices from authorities, penalties or rejection of input tax credits. 

Q – Is the GST rate linked to the HSN or SAC code? 

A – Its vital to keep in mind that GST rates have been mapped to specific HSN and SAC codes which helps in determining applicable tax rate for goods and services.