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Under the Goods and Services Tax (GST) regime, categorizing thousands of goods and services is essential for applying correct tax rates. To establish a standardized classification system, the Indian government adopted HSN and SAC codes. These codes ensure that tax officers, buyers, and sellers use the same terms for a product, eliminating confusion. In this post, we explain what HSN and SAC codes mean, the rules governing the number of digits on invoices, and their importance in billing.
What is HSN Code?
HSN stands for Harmonized System of Nomenclature. Developed by the World Customs Organization (WCO) in 1988, it is a multipurpose 6-digit classification system used globally to categorize physical commodities. India added two more digits to create an 8-digit HSN structure for precise classification. HSN codes are required when selling goods.
What is SAC Code?
SAC stands for Service Accounting Code. This is a specialized numbering system created by the Central Board of Indirect Taxes and Customs (CBIC) in India to classify services. All services—such as hospitality, IT services, consulting, and banking—fall under SAC codes. These codes start with the digits "99".
Rules for HSN/SAC digits on Invoices
Taxpayers are not required to print the entire 8-digit code on every invoice. The number of digits required depends on your business turnover in the preceding financial year:
| Annual Turnover (FY) | Number of HSN Digits Required | B2B/B2C Applicability |
|---|---|---|
| Up to ₹5 Crore | 4 Digits | Mandatory for B2B invoices; optional for B2C invoices. |
| Exceeding ₹5 Crore | 6 Digits | Mandatory for both B2B and B2C invoices. |
| Import / Export | 8 Digits | Mandatory for all import/export international trade. |
Why are HSN and SAC Codes Important?
These codes serve multiple functions. First, they determine the exact GST rate (5%, 12%, 18%, or 28%) applicable to your item. Second, they are mandatory for filing GSTR-1, where you must provide an HSN-wise summary of sales. Using incorrect codes can result in tax notices, delays in claiming Input Tax Credit, and penalties for misclassification. Always use the search tools on the GST portal or consult a professional to identify the correct code for your products.