HSN Codes:

HSN codes are internationally recognized system of codifying and classifying all the products
in the World. It will make GST compliant with the international standards and ensure proper
levy of taxes. HSN gives a systematic and logical way of classification, thereby reducing the
chances of any misinterpretations.
This type of classification is used for taxation purposes in identifying the rate of tax
applicable to a product in a country. This code is also used to determine the quantum of
item traded or imported all through a nation.
It is a much more detailed classification that added another two digits to the 6-digit
structure. There is a requirement to mention HSN code of items in tax invoice under GST.
Provisions related to HSN under GST are given below:-
• Now the Govt. has given some relief to small taxpayer with annual turnover up to Rs 1.50
crores in preceding financial year need not be required to mention HSN code in their tax
invoice.
• Taxpayers having turnover exceeds Rs. 1.5 crore but up to 5.00 crore will be required to
mention only two digits of HSN code.
• Taxpayers having turnover exceeds Rs 5.00 crore will be required to mention four digits of
HSN code.
Indian Taxation System has categorized over 1211 goods for levy of GST under 6 broad
categories or tax-slabs. These are 0% or No Tax, 5%, 12%, 18% and 28%. It is very important
to know in which of these categories your product or good has been classified. You can
easily find that with a search using commonly used word for the product. This Rate Finder
Tool can be used to find the HSN Code for the goods or products for invoicing purposes.
How do I interpret the HSN Code for a good/product?
Going through the universal HSN Code list, it is clear that every good is assigned with a 6-
digit code which is unique in nature. In India, there are 2 more digits added to these 6 for
further classification.
Let’s understand the HSN Code meaning through an example. Overall there are 21 sections
comprising 99 chapters divided into 1244 headings and 5224 sub-headings.
09 02 40 20 is the code for Black Tea sold as leaf in bulk,

 where 09 is the Chapter,

 02 is the heading and
 40 is the product code for Black Tea.
 The last 2 digits of 20 is code allotted by Indian taxation system for Black Tea sold in
leaf form and in bulk.
 Had it been Black Tea bags then the last two digits of the HSN code would have been
replaced with 40 instead of 20.
What is SAC Code?
The SAC Code meaning can be easily understood in the light of HSN Code which is a
classification rule for goods. SAC code list classifies the services which come under the ambit
of GST rate list.
What is the relation of HSN Code with GST Rate?
For an accurate levy of GST rates prevalent in India, correct HSN or SAC code is necessary
during Return filing. This would ensure seamless compliance of GST rules. Taxman’s One
Solution offers hassle-free experience where all you have to do is to choose the correct
HSN/SAC Code for goods or services, while migrating to GST software. Subsequently these
details would be auto-populated wherever deemed necessary.
What information do I get on searching for particulars about a Good?
As you feed the search keyword, you would be shown a detailed search result reflecting the
Description of Goods with their respective HSN Codes and rate of CGST, SGST and IGST
levied on them.
I have the product HSN or SAC Code and GST rate with me. Now, what next?
Once you gather all these necessary information, you can move ahead for generation of
invoices as per GST format. You can avail the end-to-end GSP services through One Solution,
integrated GST Compliance Software which allows you to generate invoices as we all file the
Returns with GSTN serve

HSN Codes:
Developed by the World Customs Organization (WCO)
Classifying goods from all over the World in a systematic and logical manner
It is a six digit uniform code that classifies more than 5,000 products and is accepted
worldwide. These set of defined rules is used for taxation purposes in identifying the rate of
tax applicable to a product in a country. It is also used to determine the quantum of product
exported or imported in and out of a country. It is a crucial feature to analyze the
movement of goods across the World. It is a combination of different sections, further
drilled down to chapters, which are further classified into headings and sub-headings. The
resultant figure is the six-digit code.

HSN in India
India is all set to have its very own Goods & Services Tax or GST, which applies to all goods
and services alike. It shall subsume many indirect taxes and reduce the burden on the end
consumer.
It is a much more detailed classification that added another two digits to the 6-digit
structure. Indian manufacturers under GST shall be required to follow a 3-tiered structure of
HSN.

 Those with a turnover of less than INR 1.5 Crores need not follow HSN
 Those with a turnover exceeding INR 1.5 Crores but less than INR 5 Crores shall be
using the 2 digit HSN codes
 Those with a turnover exceeding INR 5 Crores shall be using the 4 digit HSN codes
 Those dealers who are into imports or exports shall mandatorily follow the 8 digit
HSN codes
Understanding the digits of HSN Code
The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224
sub-headings. The commodity’s manufacturing and technological complexity define the
section or chapter to which it belongs. As such, all natural commodities like vegetables,
animal produce, etc. belong to the earlier sections, whereas industrial machinery is seen at
the later stages.
Sections>>Chapters>>Headings>>Subheadings
For e.g. – Processed cotton appears later whereas uncombed, normal cotton appears
earlier.
Service Accounting Codes (SAC)
Similar to the International HSN Codes, India has adopted a Service Accounting Code (SAC)
for all its services. GST will subsume the service tax, which covers all kinds of services at a
national rate of 15%, apart from other rates in some cases. Since GST is a combination of
goods and services both, an equable classification for services is also required. SAC will
remain the same under the GST regime.

Is HSN Code is mandatory for all the dealers?

HSN codes shall not be used mandatorily in the following cases:

 Dealers who have an annual turnover of less than INR 1.5 Crores
 Dealers registered under the Composition Scheme of GST are exempted from the
usage of HSN Codes

Why is it necessary to follow HSN Codes and SAC Codes?

HSN codes are internationally recognized system of codifying and classifying all the products
in the World. It will make GST compliant with the international standards and ensure proper
levy of taxes. HSN gives a systematic and logical way of classification, thereby reducing the
chances of any misinterpretations. Further, a common structure enables governments of
countries to collaborate data of purchases and sales of commodities and analyse the same.
Post this analysis, they can decide on macro-economic policies relatable to important
commodities.
Has the Government notified HSN Codes and Service Accounting Codes?
Yes. HSN Codes and SAC are available on the Ministry’s website. They are controlled by the
ACES website, which was earlier used by the Central Board of Excise and Customs (CBEC) for
its operations.
Here is a list of HSN Codes and Rates for Goods.
Here are SAC Codes and Rates for Services.
What is ACES?
Automation of Central Excise and Service Tax (ACES) is the e-governance initiative by Central
Board of Excise and Customs (CBEC), Department of Revenue, Ministry of Finance. It is one
of the Mission Mode Projects (MMP) of the Govt. of India under National e-Governance Plan
(NeGP). It is a software application which aims at improving tax-payer services,
transparency, accountability and efficiency in the indirect tax administration in India. This
application is a web-based & workflow-based system that has automated all major
procedures in Central Excise and Service Tax.
How can I find the product in HSN list and its relevant HSN Code?
A: ACES or other websites have the functionality of searching your product or service and
its relevant HSN / SAC Codes. Profit Books accounting software offers a way to allocate right
HSN code to the product by using a database search.

Why are HSN Codes important at the time of filing GST returns?

Since GST returns are completely automated, it will be hard for the dealers to upload the
description of the products being supplied. Hence, HSN Codes shall be automatically picked
up from the registration details of the dealer and will reduce the efforts thereby. Dealers
have to be careful in choosing the correct HSN/SAC code while migrating to GST or making a
fresh registration.

In order to minimise errors while filing GST returns, its important to know the right HSN
code for the product or service you are selling. A good accounting software can automate
most of these things and can help you to reduce the manual errors.