GST HSN Code List

1. Next Two Digits: Represent the Heading number, which narrows down the classification. For example, Heading 06 under Chapter 10 represents rice.

1. Next Two Digits: Represent the Subheading number, which provides further classification within the heading. For instance, rice may have multiple subheadings based on type, such as basmati or non-basmati rice.

1. Last Two Digits: Represent a further subheading number for even more specific classification, but this is optional and used mainly for domestic transactions.

Importance of HSN Code

The HSN system provides a uniform way of classifying goods across the world, which ensures smooth international trade. In India, it plays a critical role in:

1. Customs Procedures: It simplifies international customs procedures by enabling a consistent classification system, reducing delays and misunderstandings.

1. Tax Compliance: HSN codes are linked directly to GST rates, ensuring that businesses and tax authorities can determine the tax rate for specific goods quickly and accurately.

1. Trade Data Analysis: The classification system allows for easy collection, analysis, and comparison of trade data. Governments and businesses can track imports and exports efficiently.

1. Dispute Prevention: By standardising the classification of goods, the HSN system reduces the potential for disputes between buyers, sellers, and customs authorities, which may arise from unclear or inconsistent product classifications.

For example, rice is classified under HSN code 1006, indicating that it falls under Chapter 10 (cereals), Heading 06 (rice), with no further subheading. The GST rate for rice is 5%.

Risks of Incorrect Classification

Misclassifying goods under the wrong HSN code can lead to:

1. Incorrect Tax Calculations: Businesses may end up paying higher taxes than required or might be undercharged, causing discrepancies in tax payments.

1. Denied Tax Credits: Incorrect HSN codes may prevent businesses from claiming input tax credits (ITC), leading to additional costs.

1. Penalties and Fines: The government may impose penalties for incorrect filing of GST returns due to misclassification, potentially leading to financial losses.

1. Customs Issues: If goods are classified incorrectly, they could be held up at customs, resulting in delays or even the seizure of goods.

Benefits of using HSN Code

There are 3 main advantages of using HSN codes. They are listed below:

1. Basis of customs tariffs
2. Even classification of goods
3. Collection of worldwide business statistics

In the international market, more than 98% of the commodities are classified under the HSN system.

HSN in Goods and Services Tax (GST)

1. HSN in Goods and Services Tax (GST) codes to be declared up to 31st March 2021:

Declaration of HSN Code for Goods and Services

HSN codes to be declared from 1st April 2021. (Vide CGST notification number 78/2020 dated 15.10.2020) 

Max HSN Codes

The HSN codes for Max used for import are mentioned below:

The HSN codes for Max used for export are mentioned below:

SAC System for Services

The SAC code is a classification system used specifically for services under the GST regime. It was developed by the Central Board of Excise and Customs (CBEC) and is derived from the United Nations Central Product Classification (CPC) system. SAC codes are essential for the classification of services and determining the appropriate GST rate for each service.

Structure of SAC Code

The SAC code follows a similar structure to the HSN code but is specific to services:

1. First Two Digits: Represent the Section number, which categorises services broadly (e.g., professional services, transport services).

1. Next Two Digits: Represent the Chapter number, which further defines the service type (e.g., transport services may have a separate chapter).

1. Next Two Digits: Represent the Heading number, which narrows down the service classification even further (e.g., freight or passenger transport).

1. Last Two Digits: Represent the Subheading number, which provides the most specific classification for that service.

Importance of SAC Code

The SAC system for services provides the following advantages:

1. Standardisation: SAC codes bring uniformity to the classification of services, making it easier for businesses and tax authorities to categorise and apply the correct tax rates.

1. Simplified Taxation: Each SAC code corresponds to a fixed GST rate, allowing businesses to quickly determine the tax rate applicable to the services they provide. 

1. Reduced Errors: Using SAC codes helps minimise errors in service tax calculation, ensuring that businesses charge the correct tax rate.

1. Faster Processing: Tax authorities and businesses can process service tax returns more efficiently when services are properly classified using SAC codes.

Service Tax Rates

Just like goods, services in India are classified into five GST slabs based on the SAC code:

1. 0%: Exempt services

1. 5%

1. 12%

1. 18%

1. 28%

For instance, most restaurant services are taxed at 5%, while other services like luxury services may fall under higher tax rates such as 18% or 28%.

Risks of Incorrect SAC Codes

Similar to HSN misclassification, incorrect SAC code usage for services can lead to:

1. Incorrect GST Rates: If a service is classified under the wrong SAC code, the wrong GST rate may be applied, leading to overcharging or undercharging.

1. Non-Compliance: Incorrect SAC codes can result in non-compliance with tax regulations, leading to penalties and legal complications.

1. Delayed Refunds: Incorrect classification could delay GST refunds or input tax credit claims.

HSN and SAC Codes in GST Tax Classification

The HSN and SAC systems under GST ensure that both goods and services are classified correctly, promoting transparency and accuracy in tax reporting and payments. By using these systems:

1. Businesses can avoid errors in tax calculation and ensure they are compliant with GST laws.

1. Tax Authorities can easily verify transactions and maintain a streamlined tax collection process.

1. Customs and Trade are made more efficient and consistent, supporting smoother operations for businesses engaged in international trade.