What is HSN Code?

HSN stands for Harmonized System of Nomenclature. HSN was raised and industrialized by the WCO (World Customs Organization) in the year 1988. Since then 5 revisions has already been implemented worldwide. HSN code asserts more than 5000 goods meticulously and is widely used by more than 150 countries. It is a globally accepted multipurpose tool for customs and trade procedure. Currently, more than 95% of trade is under the WCO and every country is following 2017 revised HSN codes including India.

Importance of HSN Code

• Standardized international classification
• Rational customs tariffs
• Efficient trade data collection
• HSN numbers exist for each commodity in every country, and the number remains the same for almost all goods. In some countries, HSN numbers can vary a little because they are entirely based on the nature of the items classified.

Case Study – India

India has been a member of the WCO (World Customs Organization) since 1971. It initially employed six-digit HSN codes to classify merchandise for Customs as well as Central Excise duties. To make the codes more precise, the Customs and Central Excise authorities went on to add two more digits. This resulted in an eight-digit HSN classification.

Almost all goods in India are classified using the HSN classification code, which facilitates the use of HSN numbers for calculations of the Goods and Service Tax (GST). Â The number is currently being used to categorize goods to compute VAT (Value Added Tax).

important to remember that the HSN number must be clearly mentioned on GST Invoices when preparing Tax Invoices for GST.

Here's how the different HSN classifications, from two digits to eight digits, come into play in India:

• The government gives some form of relief to small taxpayers with annual turnover up to Rs. 1.5 crore in any preceding financial year. After this move, there is no need for small taxpayers to mention HSN codes in their taxable income.
• Taxpayers with a turnover between Rs. 1.5 crore up to 5.00 crore must mention only two digits of the HSN code.
• Taxpayers with a turnover that exceeds Rs. 5.00 crore must mention five digits of the HSN code.

The Importance of HSN Under GST

The HSN system doesn't only help Customs agents-it also has important implications for GST. It helps in making GST systematic and globally accepted.

By using HSN codes, there is no need to upload a detailed description for each good falling under the GST. This allows for the automation of GST returns, saving time and money for the tax authority.

Service Accounting Code (SAC) is a unique code that is identical to the International HSN codes in many ways. SACs are issued by Central Board of Indirect Tax to classify each service so as to identify the applicable rate of tax on the respective services. These SACs are used at the time of generating invoices for the services rendered.

What is SAC?

SAC (Service Accounting Code) is used to classify services under GST, just like HSN for goods. Issued by the CBIC, it's mandatory on service invoices.

SAC Code Structure

• First 2 digits: Chapter (e.g., 99)
• Next 2 digits: Heading
• Last 2 digits: Sub-heading

Example: 995425 refers to general construction services for industrial plants/mines.

HSN vs SAC: Key Differences