HSN and SAC Codes explained: this guide covers what HSN and SAC Codes means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Harmonized System of Nomenclature (HSN) codes are internationally standardized commodity description and coding system. Under GST, HSN codes classify goods while Services Accounting Code (SAC) classifies services. Correct classification is critical for determining the applicable GST rate.
What is HSN?
HSN (Harmonized System of Nomenclature) was developed by the World Customs Organization (WCO) and is used internationally for customs classification. India uses an 8-digit HSN code under GST:
- First 2 digits: Chapter (broad category)
- Next 2 digits: Heading (subcategory)
- Next 2 digits: Sub-heading
- Last 2 digits: National sub-heading (India-specific)
Mandatory HSN Disclosure in Invoices
| Annual Turnover (PY) | HSN Digits Required | Invoice Requirement |
|---|---|---|
| Up to Rs.5 crore | 4 digits (B2B) / optional (B2C) | 4-digit HSN on all B2B invoices |
| Above Rs.5 crore | 6 digits (B2B) | 6-digit HSN on all B2B and B2C invoices |
| Export invoices | 8 digits (always) | 8-digit HSN mandatory on all export invoices |
GSTR-1 HSN Summary
Table 12 of GSTR-1 requires disclosure of HSN-wise summary of outward supplies:
- Aggregate value exceeding Rs.5 lakh per HSN code must be reported
- Taxpayers above Rs.5 crore: must report all HSN codes
- Must mention: HSN code, description, total taxable value, IGST/CGST/SGST/cess
- From 2023: GSTR-1 Table 12 made mandatory even for smaller taxpayers
Key HSN Chapters
| Chapter | Goods | Rate |
|---|---|---|
| 01-05 | Live animals, animal products | Nil/5% |
| 06-14 | Plants, vegetables, fruits | Nil/5%/12% |
| 28-38 | Chemicals, pharmaceuticals | 5%/12%/18% |
| 50-63 | Textiles and textile articles | 5%/12% |
| 84-85 | Machinery, electrical equipment | 18%/28% |
| 87 | Vehicles (cars, motorcycles) | 28% + Cess |
SAC Codes for Services
Services Accounting Codes (SAC) are 6-digit codes prescribed by CBIC (under GST rate notification) for classifying services. All SAC codes start with 99:
| SAC Range | Service Category |
|---|---|
| 9954 | Construction services |
| 9961-9962 | Wholesale and retail trade services |
| 9971 | Financial and related services |
| 9983 | Professional, technical services |
| 9985 | Support services (BPO, security, cleaning) |
| 9992 | Education services |
| 9993 | Health and social care services |
Consequence of Wrong HSN Classification
Incorrect HSN/SAC classification can lead to:
- Wrong tax rate applied — shortfall taxable as unpaid tax with interest at 18%
- Penalty under Section 122: Rs.10,000 or 10% of tax, whichever is higher, per wrong classification
- ITC reversal if recipient classified incorrectly and claimed ITC at higher rate
- Litigation and demands during scrutiny or audit
Advance Ruling for HSN Classification
Taxpayers uncertain about correct HSN/SAC can apply to the Authority for Advance Ruling (AAR) before beginning supply. AAR ruling is binding on applicant. However, multiple contradictory AAR rulings across states create uncertainty in many classification issues.