HSN and SAC codes explained

What the codes are

HSN stands for Harmonised System of Nomenclature, an international system for classifying goods used by customs worldwide. India uses it, extended to 8 digits, in the customs tariff and in GST.

SAC stands for Services Accounting Code. It is India's own classification for services under GST. SAC codes start with 99 and have 6 digits.

How an HSN code is built

Each pair of digits narrows the description. Take ceramic floor tiles as an example of the structure:

Services work similarly: 9954 is construction services, 9965 is goods transport services, 9987 covers maintenance and repair services, and so on to 6 digits.

How many digits you must show

The general rule, set by notification:

• Aggregate turnover up to ₹5 crore in the previous year: 4-digit HSN on B2B tax invoices; optional on B2C invoices.
• Aggregate turnover above ₹5 crore: 6-digit HSN on all tax invoices.
• For certain notified chemicals, 8 digits are required.

The same digit rules apply to the HSN summary in GSTR-1, which now has its own validations. Confirm current requirements on cbic-gst.gov.in. Using more digits than required is allowed and often wiser, because it removes doubt about the rate.

The code decides the rate

GST rates are notified against HSN headings and SAC codes. Two items that look similar can carry different rates because they fall under different headings, and a rate notified for a 4-digit heading can have exceptions at 6 or 8 digits. Rates were rationalised in 2025 into fewer slabs, which changed the rate on many items, so recheck old item masters.

Example of why it matters. A trader billed ₹20,00,000 of an item at 5% when the correct heading carried 18%. The short-paid tax is 13% of ₹20,00,000 = ₹2,60,000, plus interest, and it usually cannot be recovered from customers months later. The classification question, not the arithmetic, is where the money is lost.

How to find the right code

1. Start with what the item is made of and what it does. The customs tariff chapters are organised that way.
2. Use the HSN search on the GST portal (Search HSN/SAC) to find the heading.
3. Check the rate schedule on cbic-gst.gov.in for that heading, including any condition or exception.
4. Look at what your supplier prints. It is a useful clue, not proof; suppliers make mistakes too.
5. For high-value or doubtful items, ask your CA. For real doubt, an advance ruling from the state authority is available.
6. Record the code in your item master once, so every invoice picks it up.

Goods and services on the same bill

Many businesses sell both. A service centre that repairs an air conditioner supplies a compressor (goods, HSN) and labour (service, SAC). An installer of CCTV cameras sells cameras and charges for installation. Whether these are taxed separately or as one supply depends on whether the supply is composite, with one principal supply, or mixed, and on how it is priced and billed.

In practice: show parts and labour on separate lines, each with its own code and rate, unless your CA has advised that the whole bill is one composite supply. A bill with a single line "AC repair ₹6,500" and one code invites questions about which rate applies.

Common mistakes

• Using one HSN for a whole product range, such as all "electrical goods" under one code, when items fall in different chapters.
• Copying the supplier's code without checking it.
• Typing 4 digits in a 6-digit field with zeros added at the end ("85160000"), which is not a valid code.
• Using an HSN code for a service, or a SAC code for goods, for example on repair bills that include both parts and labour.
• Not updating item masters after a rate change. See handling a GST rate change in billing.

This is general information, not tax advice.

HSN in Tally and Cashflow OS

In TallyPrime the HSN/SAC and rate are usually set on the stock item, the stock group, or the ledger. Cashflow OS reads those from the synced data. When you create a sales voucher from the phone, GST is worked out from the item and the party's state, and the GSTR-1 view groups sales HSN-wise so you can spot items with a missing or odd code.