With international transactions and goods exchange becoming the norm, there rose the need for proper documentation and identification of these goods, within a standardized system followed by every country partaking in international trade. With this rose HSN and SAC codes!
In this article, we cover what these codes are, where you can find them under GST, and how you can use HSN in India.
What is the 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 are also used for classification for tax purposes.
Used by more than 200 countries over the world, this code classifies over 98% of the goods that are available in the world.
Understanding how HSN is used in India
Since 1971, India has been a member of WCO and was 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, 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 188.8.131.52 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 184.108.40.206, wherein the 90 refers to the silk or silk waste.
What about SAC?
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 the 13 classifies it as legal documentation for patents.
How to avoid mistakes with HSN in GST?
One of the easiest ways to avoid mistakes with your HSN information while filing GST 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, again and again, each time you need an invoice created!
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.