Need to know abt HSN / SAC Code

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Mohd Abid

Mohd Abid (Querist)
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05 July 2017 please define about HSN / SAC code , and what is the role of these codes in accounting :

CA Saloni

CA Saloni (Expert)
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05 July 2017 HSN codes are for goods and SAC codes are for services....these are to be mentioned in tax invoice in GST

Asha Kanta Sharma

Asha Kanta Sharma

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03 August 2024 **HSN (Harmonized System of Nomenclature) Code** and **SAC (Service Accounting Code)** are crucial in the realm of taxation and accounting, particularly under the GST (Goods and Services Tax) system. Here’s a detailed explanation of each:

### **HSN Code (Harmonized System of Nomenclature)**

1. **Definition:**
- The HSN Code is an internationally accepted system for classifying goods. It is used to categorize products for customs and taxation purposes, making international trade more standardized and transparent.

2. **Structure:**
- The HSN Code is structured in a hierarchical manner:
- **2-digit Code:** Represents the broadest category.
- **4-digit Code:** Provides more detailed classification.
- **6-digit Code:** Further specifies the product.
- **8-digit Code (or more):** Provides even finer classification, often used by countries for their specific needs.

3. **Role in Accounting and GST:**
- **Tax Classification:** Helps determine the correct GST rate applicable to various goods. Each HSN code is associated with a specific GST rate (e.g., 5%, 12%, 18%, 28%).
- **Invoice and Documentation:** Required to be mentioned on invoices for goods supplied, helping in accurate tax calculation and reporting.
- **Customs and Import Duties:** Used to determine import duties and other customs-related formalities.

### **SAC Code (Service Accounting Code)**

1. **Definition:**
- The SAC Code is a classification system used to identify and categorize services under GST. It is used for the purpose of tax classification and reporting of services.

2. **Structure:**
- SAC codes are structured in a 6-digit format, where each code corresponds to a specific category of services. For instance, 9983 is used for “Management Consultancy Services.”

3. **Role in Accounting and GST:**
- **Tax Classification:** Helps in determining the GST rate applicable to various services. Each SAC code has a specific GST rate associated with it.
- **Invoice and Documentation:** Necessary for mentioning on invoices for services rendered to ensure correct tax application and compliance.
- **Service Tax Returns:** Facilitates proper reporting of services provided and the tax applicable, helping in accurate filing of GST returns.

### **Importance and Role in Accounting**

1. **Standardization:**
- Both HSN and SAC codes standardize the classification of goods and services, making it easier to manage and compare tax obligations across different sectors and regions.

2. **Compliance:**
- Ensures compliance with GST laws by accurately categorizing goods and services, which helps in applying the correct GST rates and filing accurate tax returns.

3. **Reporting and Audit:**
- Simplifies reporting and auditing processes by providing a standardized method for categorizing and reporting transactions, reducing errors and discrepancies.

4. **Customs and International Trade:**
- For businesses involved in international trade, HSN codes facilitate smoother customs procedures and trade compliance by providing a globally recognized classification system.

### **Example of HSN and SAC Codes**

- **HSN Code Example:**
- **1006:** Rice (HSN Code for various types of rice).
- **8415:** Air conditioning machines (HSN Code for air conditioners).

- **SAC Code Example:**
- **9983:** Management consultancy services.
- **9992:** Legal services.

By using these codes, businesses ensure that they are in compliance with GST regulations and can accurately report and pay taxes on their transactions.

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