States in India in past used to have their own methods for classifying tax rates on Goods. However, with the introduction of Goods and Service tax (GST) in India from 1st July, there is a more uniform classification with the GST tax rates. In this article, we will focus on the importance of HSN and SAC codes in GST.
What are HSN Codes?
HSN codes or “Harmonized System of Nomenclature” is a multi-purpose international commodity nomenclature and coding system prepared by the World Customs Organization (WCO). It contains a six-digit uniform code which classifies more than 5,000 products and is accepted worldwide. The objective of using HSN codes is to ensure that invoicing under GST are matching with the international standards of product nomenclature.
Why are HSN codes required?
Since every business in India needs to declare the detailed list of the goods they are dealing into which is required alongside the HSN code of the commodity. By inputting the details, the IT systems of the GST will automatically pick the tax rates based on these HSN codes under the GST regime. Therefore, a taxpayer needs to be careful while mentioning the HSN codes at the time of registration under GST.
Who all needs HSN codes?
The GST Council has finalized 4 different slabs for the dealers according to their products and their turnover the prior year.
- Dealers having a yearly turnover of Rs 1.5 crores or less does not require to adopt HSN codes for their products.
- Dealers having the yearly turnover between, Rs 1.5 crores and Rs 5 crores shall be required to use two-digit HSN codes for their products when filing returns and invoicing.
- Dealers with yearly turnover equal to Rs 5 crores and above shall be required to use four-digit HSN codes for their products.
- In the instance of imports/exports, HSN codes of eight digits shall be products, as GST must be compatible with international standards and practices.
What is SAC Code?
“Services Accounting Code” or SAC is a system used for classification of services developed by the Service Tax Department of India. The council has finalized the rates for services into five slabs which are 0%, 5%, 12%, 18%, 28%. A default GST rate of 18% for services will be applicable if a service is not exempted from GST or the rates are not provided.