What is HSN code?
HSN code stands for Harmonized System of Nomenclature developed by the world customs organization (WCO). It is considered as an international product nomenclature, which is used to ensure that the goods and services tax invoice practices are in tune and line with the international standards of various product nomenclatures. WCO had the vision to classify the goods from all over the world in a very systematic manner, and thus HSN is a unique uniform code that today classifies more than 5,000 products and is accepted globally.
HSN is also used to determine the quantity of goods that are exported or imported in a country. Thus it is a very crucial number to identify and analyze the in and out movements of goods across the world. It has been accepted across 200 nations and covers 98% of the goods in the world.
What is SAC code?
Like the HSN code, India accepted the SAC code, which stands for Service Accounting Code. India accepted SAC for all its services. It is used to identify all the services that come under the GST as all the services have been included in GST which earlier were under the service tax.
Why HSN Code is required?
At the time of registration, it is utmost important to mention the correct HSN number as the system automatically picks the tax rate under the GST reform. Hence the tax rates of various commodities are based on the HSN codes, and every business is required to declare the list of codes they deal. At the time of declaration, the businesses are required to mention and be very particular about the HSN code that they present. The HSN and the SAC codes are available at the government’s website, and these are controlled by the ACES, which stands for automation of central excise and service tax.
How does one identify the GST rates?
The first step is towards the correct HSN code, once you get that right, it is really important to the find out the right tax rate for your product so that you do not collect the wrong rate of taxes. There are various tax slabs under the umbrella of GST such as 0%, 5%, 12%, 18% and 28%. While staple food products are free from GST, i.e., a 0% tax is levied, luxury goods and sin goods such as tobacco attract as much as 28% GST. ACES website has the functionality and the provision of searching the product or service and its HSN or SAC code.
How to use the HSN codes?
There are three arrays of GST codes that a dealer can use under GST. A two, four or an eight digit HSN codes have been assigned to the commodities, and their usage depends on the kind of turnover that a dealer had in the preceding financial year. As per the law-
A) Dealers with an annual turnover of less than ₹ 1.5 crores do not require the HSN codes to file their returns or when they create their invoices
B) Dealers who have an annual turnover greater than ₹ 1.5 crores but less than ₹ 5 crores are supposed to use the two digit HSN code for the commodities that they provide when they generate the invoice or file for returns.
C) And any dealer that has an annual turnover greater than ₹ 5 crores must have a four digit HSN code for all their invoices.
D) It is compulsory to have the eight digit HSN code in case the business is into import or export of various commodities as these GST compliant invoices need to be very compatible with the international invoice practices and standards.