What is HSN Code?

HSN stands for “Harmonized System of Nomenclature” and is used to classify goods in a systematic manner. It was developed by the World Customs Organization (WCO) and is considered the global standard when it comes to naming goods. This 6-digit uniform code can be used to classify more than 5,000 products and is also used for classification for tax purposes systematically.

What is SAC Code?

SAC stands for “Servicing Accounting Code” and is used to classify services instead of goods. All services tend to begin with the number 99, which is what identifies the code as a SAC and not an HSN.

For clarity, let’s look at this SAC- 99.82.13. Here, the 99 represents all services in general. 82 classifies this as legal services and 13 classifies it as legal documentation for patents.

How does HSN Work?

HSN is an standardised system for international trade naming and classifying products. Over 200 countries use it, and it covers about 98% of the world’s merchandise.

HSN code is important in GST because it has a six-digit code that identifies a specific product or category. The first two digits specify the chapter, the following two mean the heading and the last two reveal the subheading. For example, the HSN code for coffee beans is 0901.11.

The HSN codes are organised into about 5,000 commodity groups, each with a different level of detail and specificity. It is based on a legal and logical structure supporting uniform product classification across countries and regions.

The HSN system is governed by a set of rules that define the principles and methods of classification. These rules help ensure consistency and accuracy in applying HSN codes. They also help resolve any disputes or ambiguities that may arise in interpreting the codes.

HSN code is not only relevant for taxation but also for various other business calculations. For instance, HSN codes can help to determine the eligibility and amount of benefits under various trade agreements, such as duty drawbacks, export incentives or preferential tariffs. These codes can also help to facilitate the collection and analysis of trade statistics, such as import and export volumes, values and trends.

The Importance of the HSN Code

The primary purpose of the HSN code is to provide a systematic and logical way of identifying and grouping goods based on their characteristics, such as material, function, origin, etc. This helps facilitate the collection and analysis of trade statistics and the implementation of customs tariffs and other trade policies.

The HSN code also ensures that goods are classified uniformly across different countries, which reduces the chances of disputes and errors in trade transactions. The HSN code is adaptable to each country’s specific needs and preferences, as they can add more digits to the six-digit code to create more subcategories of goods.

In India, the HSN code was initially adopted with six digits. However, later it was expanded to eight digits for a more precise classification of goods. This was done to align with the GST regime, which requires the HSN code to be mentioned in the taxpayers’ invoices and returns.

The HSN code is also beneficial for small taxpayers in India, as they are exempted from mentioning the HSN code in their invoices and returns if their annual turnover is less than Rs. 1.5 crore. However, if their turnover exceeds Rs. 1.5 crore, they have to mention the HSN code of two digits. Similarly, if their turnover exceeds Rs. 5 crore, they must mention the four-digit HSN code.

What is the use of the SAC code in GST?

SAC is a six-digit code assigned to each service under the GST rule. The primary purpose of this code is to classify and facilitate the taxation of various services businesses provide under GST.

SAC codes contribute to a uniform tax system, ensuring consistent taxation nationwide. They help to avoid ambiguity and confusion in the classification of services and the applicable GST rates. They also make it easier to identify different types of services and their respective tax rates, ranging from 0% to 28%.

SAC codes enable efficient monitoring and tracking of services, leading to more effective tax collection. They also simplify the invoicing, accounting and reporting processes for service providers and tax authorities. They also help to prevent tax evasion and fraud by ensuring transparency and accountability in the service sector.

To illustrate how a specific service is classified using a SAC code and how it aids in tax calculation, let’s take the example of construction services of buildings.

This service falls under the heading 9954, group 99541, and has different SAC codes for different subcategories of buildings, such as residential, industrial, commercial, etc. The GST rate for this service is 18%, which means that the service provider has to charge 18% GST on the invoice amount and pay the same to the government. The SAC code helps identify the service’s exact nature and applicable GST rate, thus avoiding any confusion or dispute.

Understanding how the HSN Code is used in India

Since 1971, India has been a member of WCO and has been using 6-digit HSN codes to classify goods for Customs and Central Excise since 1986. However, the Customs and Central Excise added 2 more digits later to make HSN codes for better differentiation.

With the introduction of GST in India, HSN is now being used under a 3-tiered system.

This includes the following:

  • Businesses that have a turnover of less than Rs 1.5 crore do not need to use HSN
  • Businesses that have a turnover of more than Rs 1.5 crore but still less than Rs 5 crore must use 2-digit HSN codes
  • Businesses that have a turnover of more than Rs 5 crore must use 4-digit HSN codes
  • Businesses that deal with imports and exports have to use an 8-digit HSN code

Within the context of GST tax rates, HSN codes are used in order to make GST something that is used worldwide. HSN codes, in general, contain 21 sections, within which you can find 99 chapters, along with 1,244 headings and 5,224 subheadings.

Each section number that is used is further divided into chapters, which are then divided into headings and then, subheadings. The sections and chapters describe the product, while the headings and subheadings offer much greater detail about the product itself.

For clarity, let’s look at this HSN – 62.13.90

In this case, the first two digits (62) are used to describe apparel or clothing (but not knitted or crocheted clothing). The next two digits (13) refer to handkerchiefs. Finally, (90) refers to the fact that these handkerchiefs are made of other textiles or materials. So, this code is referring to handkerchiefs that are made from textile materials.

In India, there are two additional steps. If the handkerchiefs were made of man-made textiles, then the total code would be, wherein the 10 refers to the man-made textiles. Similarly, if the products were made of silk or silk waste, then the code would be, wherein the 90 refers to the silk or silk waste.

How to avoid mistakes with HSN in GST?

One of the easiest ways to avoid mistakes with your HSN information while filing GST after assessing your liability using a GST calculator in India is by using smart payment dashboards and functions that are offered by Razorpay.

One of the many benefits of using Razorpay is that you can generate GST-compliant invoices automatically with every transaction (or with a few transactions together) if you need to. You can even save templates of your invoice or line items so that you don’t have to enter them every time you need an invoice created!

Also Read: How to generate GST compliant dynamic QR codes with Razorpay

These invoices are easy to share and download. Ensure your business is compliant with all tax regulations by working on an automated platform that does everything for you!

Be sure to also check what tax rate you’re subject to for your goods and services. Get GST-inclusive and exclusive prices for your goods with our free GST calculator.

Differences between the HSN Code and SAC Code

SAC and HSN codes are two systems of classification used for goods and services under the GST regime in India or the GST State Code List. They both identify the nature and value of the taxable items and ensure uniformity across the country.

However, they differ in their numerical structure and level of detail. SAC codes are six digits long, while HSN codes are eight digits long. The length of the codes reflects the degree of specificity and categorisation of the items. SAC codes have two digits for the major service category, two for the specific service, and two for the sub-service. HSN codes have two digits for the chapter, two for the heading, two for the product, and two for the sub-product.

For example, the SAC code for restaurant services is 9963, while the HSN code for rice is 1006. The codes would differ for a service and a related product, such as the SAC code for banking services (9971) and the HSN code for banknotes (4907).


Before proceeding with the GST Registration Process, know these codes are important. HSN and SAC codes are essential for the GST framework, as they help to classify goods and services uniformly and systematically. They also facilitate the determination of GST rates and the collection of tax revenue. Accurate classification is crucial for the effective implementation of GST, as it ensures compliance, transparency and accountability. Moreover, HSN codes are widely used in international trade and taxation, making them essential for India’s integration with the global market and the harmonisation of customs procedures.

Frequently Asked Questions

1. What is the HSN code in India?

HSN stands for Harmonized System of Nomenclature and is used to classify goods in a systematic manner.

2. What is the GST E-bill?

Electronic Way Bill or an E-Way Bill is a bill issued for the movement of goods in India. The bill has to be generated on the E-Way Bill Portal.

3. What is HSN code used for?

HSN codes are used to classify the commodities into various sections, chapters, headings, and sub-headings for convenience.

4. Is HSN code mandatory in GST invoices?

Yes, under GST invoice rules and formats, suppliers are required to mandatorily display the HSN code or SAC code of the goods or services supplied with an invoice.

5. Is HSN an 8-digit code?

Businesses that have a turnover of more than Rs 1.5 crore, but still less than Rs 5 crore, must use 2-digit HSN codes < Businesses that have a turnover of more than Rs 5 crore must use 4-digit HSN codes < Businesses that deal with imports and exports have to use an 8-digit HSN code.

6. Who is eligible for the HSN code in GST?

According to the GST rules, every taxpayer with a turnover of over Rs. 5 crores in the previous financial year must mention the 6-digit HSN code for goods and services on their invoices and GSTR-1 returns.

7. Is a GST bill valid without an HSN code?

No, they are invalid. The reason is HSN is a mandatory requirement for claiming input tax credits and ensuring compliance.

8. Are HSN codes the same across all countries?

Yes, they are identical in all the countries that are under the World Customs Organisation (WCO), which is over 200 countries and economies. They use 6-digit HSN codes to classify goods. However, some countries use 8-digit codes to further sub-classify products or goods.


Writer. Payments enthusiast. The most curious person in the room.

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