Goods and Service Tax (GST) in India streamlines the indirect taxation approach by centralising several taxes to achieve a smooth integration of the overall taxation system. The GST implementation works effectively based on classification, which involves putting goods and services into specific categories of a certain code. This is where Harmonized System of Nomenclature (HSN) codes and Services Accounting Codes (SAC) come into the picture.
The Harmonized System of Nomenclature and Services Accounting Codes are basic rules that categorise businesses, helping companies properly tag goods and services while maintaining consistent tax rates and lowering GST filing mistakes. Whether you are a manufacturer, trader, or service provider, knowing the correct HSN code or SAC for your business is crucial for smooth tax compliance.
This blog discusses HSN and SAC codes, their structure, significance, differences between them, and their effect on GST calculation. In addition, it provides the latest HSN and SAC code list for 2025 to ensure businesses can remain GST compliant.
What is an HSN code?
The Harmonized System of Nomenclature (HSN) is an internationally standardised coding system used to classify goods. The World Customs Organization developed HSN as an international classification system used by 200 nations, including India, for standardising tax-related and trading regulations.
Why is the HSN code important?
The Harmonized System of Nomenclature code is a crucial component of the GST framework. Below are the key reasons why HSN codes are essential under GST:
- They help businesses use proper GST tax rates by putting their products into the right categories.
- They enable companies to avoid wrong reporting decisions, lowering their chance of tax non-compliance.
- HSN helps businesses trade internationally because it operates in 200 nations.
- GST returns become easier to process because of this system.
HSN code structure in India
India follows a 6-digit, and 8-digit HSN coding system, depending on business size and trade scope.
- 6-digit HSN code: It is mainly used for international trade and required for businesses with a turnover above ₹5 crore.
- 8-digit HSN code: It provides more detailed product classification for specific items.
If the turnover of a business is between ₹1.5 crore and ₹5 crore, a 4-digit HSN code applies. However, an e-invoice system doesn’t accept a 4-digit code anymore.
The first two digits represent the chapter number, the next two represent the heading number, the next two indicate the sub-headings, and the last two refer to the tariff item.
How to generate an HSN code?
The steps to generate an HSN code:
- Identify the product category – Refer to the GST tariff schedule to determine the category of the goods.
- Check WCO guidelines – The international 6-digit HSN system classifies goods based on characteristics.
- Find the correct code – Indian businesses should refer to the 8-digit classification list under the GST system.
- Ensure accuracy – Double-check codes against the latest GST notifications to avoid incorrect tax filing.
What is a SAC code?
The Services Accounting Code (SAC) is a unique classification system for services under the GST regime. The Central Board of Indirect Taxes and Customs (CBIC) assigns these codes to ensure a structured approach to taxation for service-based businesses.
Why is the SAC code important?
- Facilitates correct GST calculation – Ensures accurate taxation for different types of services.
- Simplifies GST returns – Helps businesses correctly classify their services, reducing tax filing errors.
- Mandatory for service providers – All businesses offering services must use the relevant SAC code for GST compliance.
Structure of SAC codes in India
SAC codes are always 6-digit numeric codes with a predefined structure:
- The first two digits (99) always indicate a service.
- The next four digits define the specific type of service provided.
How to generate a SAC code?
- Determine service category – Identify the service type using the GST service classification list.
- Find the matching SAC code – Use the CBIC database to locate the correct SAC code.
- Verify and apply the code – Ensure the SAC code matches the service being offered to avoid GST-related discrepancies.
Difference between HSN code and SAC code
While both HSN and SAC codes are used for tax classification, they serve different purposes.
Benefits of using HSN and SAC codes
The advantages of these codes include:
- Easier GST filing – Proper classification minimises tax-related errors and simplifies return filing.
- Global recognition – HSN codes align with international trade norms, helping exporters and importers.
- Reduces tax discrepancies – Ensures businesses apply the correct tax rates, avoiding penalties.
- Improves compliance – Accurate coding helps businesses adhere to GST regulations, reducing risks of audits.
- Enhances business efficiency – Streamlines tax categorisation and speeds up financial transactions and invoice processing.
Points to Note
- Small dealers under composition scheme will not be required to mention HSN / SAC codes in their invoices.
- HSN / SAC codes will need to be mentioned in invoice and mentioned in the GST tax returndetails, which will be uploaded on the GSTN portal.
- At the time of GST registration/ GST migration , the HSN / SAC codes of the supplies a business deals in, will need to be mentioned.
Frequently Asked Questions (FAQs)
How to find the correct HSN/SAC code?
To find the correct HSN or SAC code, businesses can:
- Refer to the GST portal (https://www.gst.gov.in/) for the latest classification.
- Check the CBIC (Central Board of Indirect Taxes and Customs) database for updated HSN and SAC codes.
- Use GST rate lookup tools provided by tax consultancy firms and government websites.
- Consult with a tax expert or chartered accountant to ensure accurate classification.
Are HSN codes mandatory for all businesses?
Yes, it’s mandatory under certain conditions. Businesses must use HSN codes depending on their yearly sales revenue status.
- If your business turnover reaches ₹1.5 crore or less, you do not require HSN codes.
- Turnover between ₹1.5 crore and ₹5 crore – Use a 4-digit HSN code.
- Turnover above ₹5 crore – Use a 6-digit HSN code.
- For international trade, an 8-digit HSN code is required.
Who is eligible for HSN codes in GST?
Any business engaged in the supply of goods must use an HSN code in GST invoices, returns, and e-way bills. However, businesses with a turnover below ₹1.5 crore are exempt from using HSN codes. Service providers, on the other hand, must use SAC codes for classification.
Where are HSN codes required to be mentioned?
HSN codes must be included in:
- GST invoices – To specify the classification of goods.
- GST returns (GSTR-1, GSTR-3B, etc.) – To ensure correct tax reporting.
- E-way bills – For tracking the movement of goods.
- Customs documentation – When importing or exporting goods.
Is the HSN code 4-digit or 8-digit?
HSN codes can be 4-digit, 6-digit, or 8-digit, depending on the business size and trade requirements:
- 4-digit HSN – Used by small and medium enterprises (SMEs) for domestic trade.
- 6-digit HSN – Required for businesses with turnover above ₹5 crore.
- 8-digit HSN – Used for specific product identification, especially in international trade.
What is HSN 18% GST?
HSN codes assigned to goods under the 18% GST slab include a wide range of items such as:
- Industrial machinery (HSN: 8479)
- Electronic appliances like LED lights (HSN: 8539)
- Some packaged food items (HSN: 1905)
- IT and software-related services (under SAC codes)
Businesses should refer to the official GST rate schedule to determine the correct classification for their products.
