What are 'HSN codes' and 'SAC codes' in GST?
HSN (Harmonized System of Nomenclature) codes and SAC (Services Accounting Code) are numerical codes used in the Goods and Services Tax (GST) system in India to classify goods and services, respectively. These codes are designed to provide a standardized method for identifying and categorizing products and services for tax purposes. Let’s delve into each:
HSN Codes (Goods):
1. Definition:
– HSN codes are a set of internationally recognized codes used to classify and define products in a systematic and logical manner.
2. Purpose:
– The main purpose of HSN codes is to streamline the process of tax assessment and reduce ambiguities in the classification of goods. It helps in the proper identification of goods and facilitates international trade.
3. Application:
– HSN codes are applied to goods for the purpose of GST. Each product is assigned a specific code that helps in uniform classification.
4. Number of Digits:
– HSN codes can have two, four, six, eight, or more digits, depending on the level of specificity required. The first two digits represent the chapter, and subsequent digits provide more detailed classification
Example:
– For instance, the HSN code for “Edible vegetables and certain roots and tubers” is 07. If you go into more detail, the code for “Potatoes” is 0701, and the code for “Seed potatoes” is 0701.10.
SAC Codes (Services):
1. Definition:
– SAC codes are numerical codes used to uniquely identify and classify services under the GST system.
2. Purpose:
Similar to HSN codes for goods, SAC codes are used to systematize the identification and classification of various services.
3. Application:
– SAC codes are applied to services for the purpose of GST. Each service is assigned a specific code that aids in uniform classification.
4. Number of Digits:
– SAC codes generally have six digits. The first two digits represent the main service category, and the subsequent four digits provide more detailed classification.
Example:
– The SAC code for “Architectural services” is 9983. If you go into more detail, the code for “Urban planning and landscape architectural services” is 998311.
Importance:
- Uniformity and Clarity:
HSN and SAC codes bring uniformity and clarity in the classification of goods and services, reducing confusion and promoting consistency in taxation.
- Ease of Compliance:
The use of these codes simplifies the process of tax filing and compliance for businesses as they can accurately report the HSN and SAC codes for their transactions.
- Global Standardization:
HSN codes align with international standards for product classification, facilitating smoother international trade.
Businesses need to be aware of the appropriate HSN and SAC codes applicable to their goods and services to ensure accurate and compliant GST filing. These codes are an integral part of GST invoices and returns. It’s advisable for businesses to consult with tax professionals like LEGATO BUSINESS SOLUTION LLP for guidance on proper code classification.