1. What is HSN / SAC code?
HSN (Harmonized System of Nomenclature) is an internationally accepted 6 digit uniform product coding system developed by World Customs Organisation (WCO). In India, HSN coding was earlier used under Excise, Customs, and state Value Added Tax (VAT) laws and is accordingly is now used under Goods and Services Tax (GST) law, for classification of products/goods. Further SAC (Service Accounting Codes) as issued by CBIC are used for classification of supply of services.
It may be noted here that when goods and offerings are recognized via their specific HSN codes, which are globally acceptable, the identification of goods becomes easy, and resultantly possibilities of misinterpretation tend to reduce.
Further while filing GST returns (GSTR-1) online, HSN code in respect of the supply of goods and Services Accounting Code (SAC) in respect of the supply of services will have to be uploaded, and there will be no need for entering the description of the goods or services while filing such returns.
2. Current requirement of using HSN / SAC Code:
Under GST law, the HSN code / SAC to be used by a taxpayer for classification of goods / services will be based on the taxpayer’s turnover. The HSN / SAC code needs to be declared on the tax invoice and also to be reported while filing the GSTR-1 i.e. return that summarizes all outward supplies of a taxpayer.
Currently in India we have a 8 digit structure of an HSN / SAC Code, wherein the first 2 digits define the Chapter where the good or service is listed in the Code list, at 4 digit level are the headings, at 6 digit are the subheadings and finally at 8 digit are the tariff items for more precise classification.
2.1 Usage of HSN / SAC Codes on basis of turnover of the supplier:
The HSN codes / SAC for mandatory mapping/classification of goods that are currently to be used by a taxpayer as prescribed by first proviso to Rule 46 of the CGST Rules, 2017 read with Notification No. 12/ 2017-Central Tax dated 28-06-2017 are as follows;
a) When 2-digit HSN / SAC code is to be used:
The taxpayers with turnover between Rs. 1.5 crore and Rs. 5 crore in the preceding financial year, mentioning 2-digit chapter level HSN code is mandatory for all taxpayers with turnover between Rs. 1.5 crore and Rs. 5 crore in the previous financial year.
Taxpayers whose turnover is below Rs. 1.5 crore are not required to mention HSN code / SAC in their invoices.
b) When 4-digit HSN / SAC code is to be used:
HSN code of 4 digits will be mandatory for taxpayers having turnover more than Rs. 5 crore in the preceding financial year. Turnover will be considered on the basis of taxpayer’s self-declaration for the first year. After completing the first year under GST, the turnover for the previous year will be considered for determining the use of 4-digit HSN codes.
c) When 8-digit HSN code is to be used:
HSN codes of 8 digits are mandatory in case of export and imports of goods.
3. Revised requirement for declaring HSN/ SAC Code: Decision on 42nd GST Council Meeting
The GST Council Meeting held on Oct, 5 has recommended the Revised Requirement of declaring Harmonized System Nomenclature (HSN) for goods and Service Accounting Code (SAC) for services in invoices and in FORM GSTR-1, which will come into effect from April 1, 2021.
- It is recommended that HSN/SAC at 6 digits for supplies (B2B as well as B2C) of both goods and services for taxpayers with aggregate annual turnover above Rs. 5 crores. As per existing requirement such taxpayers are required to declare only 4 digit HSN / SAC.
- HSN/SAC at 4 digits for B2B supplies of both goods and services for taxpayers with aggregate annual turnover up to Rs. 5 crores. Currently the requirement is to mention 2 digits HSN / SAC by tax payers having turnover between Rs. 1.5 crore and Rs. 5 crore and such codes are not to be given by taxpayers having turnover less than Rs 1.50 Cr, but under revised requirement they will also be covered. Also currently no distinction between B2B and B2C supplies exists, however under the new scheme the codes needs to be disclosed only in respect of B2B supplies and not in case of B2C supplies.
- The government has the power to notify 8 digit HSN on the notified class of supplies by all taxpayers. It may noted here that reference of only HSN is here and thus 8 digit HSN disclosure will be required only for supply of goods and not for services , which is in line with current position where HSN codes of 8 digits are mandatory only in case of export and imports of goods.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
