A Simple Guide to Confirming HSN Codes
Before the advent of the Goods and Services Tax (GST), managing HSN codes was a different ball game. However, since the introduction of GST in 2017, several significant changes have occurred, one of them being the organisation of HSN (Harmonized System of Nomenclature) and SAC (Services Accounting Code) codes into chapters.
HSN codes serve the purpose of classifying goods for taxation. Globally recognized, the HSN system simplifies international trade through standardisation. These codes typically consist of 6 to 8 numeric digits, with the first 2 digits signifying the chapter and the subsequent digits specifying subcategories. For example, the HSN code for rice could be 1006, where '10' denotes the cereal chapter and '06' pinpoints rice.
SAC codes, on the other hand, are used to classify services for taxation purposes. Unlike HSN codes, SAC codes consist of 6 digits and aid in identifying the precise nature of services provided by a business. For instance, the SAC code for legal services is 998212.
The Importance of HSN and SAC Codes for GST Compliance
1. Accurate Tax Calculation:
The primary objective of HSN and SAC codes is to ensure precise tax calculation under GST. By correctly classifying goods and services, businesses can determine the applicable GST rates-whether they are 5%, 12%, 18%, or 28%.
2. Reduced Errors:
Using the right HSN and SAC codes minimises the likelihood of errors in GST returns. Accurate return filing is crucial to avoid penalties and legal repercussions.
3. Seamless Input Tax Credit (ITC):
Accurate HSN and SAC codes streamline the process of claiming Input Tax Credit. Businesses can claim ITC only if their suppliers have reported the correct HSN and SAC codes.
4. Government Compliance:
Complying with prescribed HSN and SAC codes is mandatory under GST law. Non-compliance can result in legal issues, including fines and penalties.
How to Determine HSN and SAC Codes
Coming to the challenge of determining the relevant HSN and SAC codes for your business’ products and services. It is especially difficult for businesses dealing with a wide array of products and services. Here's a step-by-step guide to assist in this process:
1. Identify Your Products/Services:
Start by identifying the products or services your business deals with.
2. Refer to GST Rate Schedule:
Consult the GST rate schedule to determine the applicable GST rate for your products or services.
3. Access the HSN/SAC Code List:
The GST portal offers an extensive list of HSN and SAC codes. Search for the code that best matches your product or service description.
GST portal has a feature of searching HSN codes or, alternatively, searching for words in the code description.
4. Seek Professional Advice:
If you're uncertain about classification, consider seeking advice from tax professionals or experts.
5. Check HSN Codes on the EaseMyGST Solution
You can enter the HSN codes and see detailed information related to the code and its sub-codes or vice-versa, you can search by description.
EaseMyGST app has a feature of searching HSN codes or, alternatively, searching for words in the code description.
Seek Professional Advice
If you're uncertain about the classification, consider seeking advice from tax professionals or experts.
In conclusion, maintaining GST compliance is essential for the smooth operation of businesses in the Indian taxation landscape, and it all begins with accurate HSN and SAC codes. Taking the time to confirm these codes correctly can save you from potential complications and ensure smooth business operations. There are multiple ways to verify the HSN and SAC codes but taking help of professionals during the setup of products in your transaction and accounting softwares is always fruitful. HSN codes impact the tax calculations and also facilitate seamless compliance with government regulations.
Chapter-wise distribution of goods using HSN codes
While there are multiple ways to verify HSN and SAC codes, seeking the assistance of professionals during the setup of products is always beneficial. They not only ensure accurate tax calculations but also facilitate seamless compliance with government regulations. Staying GST compliant is essential for the smooth operation of businesses in the Indian taxation landscape, and it all starts with the right HSN and SAC codes.