HSN and SAC Codes under Indian GST — Classification, Reporting Thresholds + Common Pitfalls (FY 2025-26)

Why HSN and SAC codes matter

In the GST framework, product descriptions and commercial names are inherently ambiguous. A “laptop” might be invoiced as a “notebook,” a “portable computer,” or a “computing device.” Relying on free-text descriptions to determine tax liability creates friction with the department and surfaces in classification disputes during audit.

The Indian GST framework anchors classification to two numerical systems: HSN (Harmonized System of Nomenclature) for goods, and SAC (Service Accounting Code) for services. Every taxable supply on a GST invoice carries an HSN or SAC; the code in turn dictates the GST rate. Using the wrong code produces either under-collection of tax (interest + penalty exposure) or over-collection (commercial competitiveness drag), and a mismatch between invoice HSN and GSTR-1 Table 12 summary is a frequently observed source of departmental notice.

For the broader GST framework context, see the GST overview pillar.

What HSN and SAC actually are

HSN — for goods

The Harmonized System of Nomenclature is maintained by the World Customs Organization (WCO) and used in 200+ countries. The code is hierarchical:

• 2-digit (Chapter) — broadest category (e.g., Chapter 61 — articles of apparel and clothing accessories, knitted or crocheted)
• 4-digit (Heading) — narrowed category (e.g., 6109 — T-shirts, singlets and other vests)
• 6-digit (Sub-heading) — global classification (e.g., 6109 10 — cotton T-shirts)
• 8-digit (Tariff Item) — India-specific extension under ITC-HS (Indian Trade Clarification based on Harmonized System); the extra two digits add domestic granularity used by Customs

SAC — for services

Services don’t sit naturally inside WCO’s physical-goods framework, so India developed its own Service Accounting Code system under GST. All SAC codes are 6 digits and begin with the prefix 99. The subsequent four digits identify the service category and sub-category.

HSN / SAC reporting thresholds (FY 2025-26)

The CBIC sets how many digits must appear on tax invoices and in returns. The framework derives from Notification No. 78/2020-Central Tax (effective 1 April 2021) and the threshold structure is unchanged through FY 2025-26.

Turnover (preceding FY aggregate)	B2B invoices	B2C invoices
Up to ₹5 crore	4-digit HSN mandatory	Optional
Above ₹5 crore	6-digit HSN mandatory	6-digit HSN mandatory
Exports + imports	8-digit HSN (ITC-HS) mandatory	—

E-invoicing layer: taxpayers above the e-invoicing turnover threshold (currently ₹5 crore aggregate turnover, applicable since 1 August 2023) must provide a valid 6-digit HSN in the e-invoice JSON payload; the IRP validates against the CBIC HSN master and rejects unrecognised codes. For e-invoicing mechanics, see the GST E-Invoicing spoke.

Threshold trigger mid-year: turnover is measured against the preceding FY’s aggregate. A taxpayer that crossed ₹5 crore in FY 2024-25 must use 6-digit HSN throughout FY 2025-26, even if FY 2025-26 turnover dips below ₹5 crore. The corresponding upgrade to ERP / invoicing-software settings is a frequently overlooked compliance step.

HSN / SAC — where it shows up

HSN and SAC don’t live only on invoices; they are woven across five reporting touchpoints:

1. Tax invoices — at the line-item level, in a dedicated column alongside description, quantity, rate, and value. Multiple HSN codes on one invoice (mixed bag of products) are reported per line.
2. GSTR-1 Table 12 — HSN-wise summary of outward supplies, filed monthly (turnover > ₹5 crore) or quarterly under QRMP scheme (turnover ≤ ₹5 crore). Digit-level matches the invoice threshold above.
3. GSTR-9 Annual Return — Table 17 (HSN-wise summary of outward supplies, annual) and Table 18 (HSN summary of inward supplies that account for >10% of total inward supplies). Applicable to taxpayers above the GSTR-9 threshold (currently ₹2 crore aggregate turnover).
4. E-Way Bill — the e-way bill portal validates the HSN against the underlying tax-invoice value and rejects mismatches.
5. E-Invoice JSON payload — IRP validates HSN against the CBIC master before generating the IRN + QR code. Invalid or retired HSN codes cause IRN generation to fail.

For end-to-end GSTR-1 + GSTR-3B preparation, see the GST Return Filing service.

How to find the right HSN code

The authoritative source is the CBIC HSN/SAC Lookup at services.gst.gov.in/services/searchhsnsac. Practical steps:

1. Search by keyword or HSN prefix — don’t stop at the first result; read the Chapter Notes for exclusions.
2. Verify that the granularity (4, 6, or 8 digits) matches the taxpayer’s reporting requirement.
3. Validate the rate against the latest post-GST-2.0 rate notification (effective 22 September 2025) — not against pre-22-Sep-2025 ERP master data.

Composite vs mixed supply — Section 8 of the CGST Act

Many supplies bundle multiple items with different HSN codes. Section 8 of the CGST Act dictates the classification rule:

• Composite supply — items naturally bundled in the ordinary course of business (e.g., laptop + charger + bundled software). The HSN and rate of the principal supply governs the entire bundle.
• Mixed supply — items not naturally bundled but combined for a single price (e.g., Diwali hamper with chocolate + tie + watch). The HSN and rate of the item carrying the highest rate in the bundle applies to the entire bundle.

The composite-vs-mixed distinction is itself a frequent source of classification dispute; the documented basis for the call should be preserved (typically a supply description + commercial rationale in the master-data record).

SAC codes for services — main categories

All SAC codes are 6 digits and start with “99”. The most commonly used SAC headings for Indian SMEs:

• 9954 — construction services (commercial, residential, civil engineering)
• 9961 — services in wholesale trade
• 9962 — services in retail trade
• 9963 — accommodation, food, and beverage services (hotels, restaurants, catering)
• 9965 — goods transport services — includes Goods Transport Agencies, where the Reverse Charge Mechanism commonly applies
• 9971 — financial and related services (banking, insurance, stock-broking)
• 9983 — other professional, technical, and business services — includes IT consulting, legal, accounting, management consulting
• 9984 — telecommunications, broadcasting, and information supply services
• 9988 — manufacturing services on physical inputs (goods) owned by others — i.e., job work

Service providers that have crossed the GST registration thresholds should map their full service catalog to the correct SAC at GSTIN-application stage; subsequent mapping changes are operationally clean but require updates across the invoicing template, the GSTR-1 Table 12 summary methodology, and the ERP master.

Common HSN / SAC mistakes that trigger GST notices

The Directorate General of GST Intelligence (DGGI) increasingly uses data analytics to flag classification anomalies. Commonly observed errors:

1. Wrong code → wrong rate — using a generic 4-digit code that aggregates products into a lower-rate bucket when the specific 6-digit code attracts a higher rate. Discovered during audit, this triggers tax shortfall + 18% interest under Section 50.
2. Outdated codes — using HSN codes that have been retired or restructured. The e-invoicing IRP and e-way bill portal reject these; GSTR-1 Table 12 validation also flags them.
3. E-invoice ↔ GSTR-1 mismatch — e-invoice JSON contains a 6-digit HSN, but the GSTR-1 Table 12 summary uses a 4-digit roll-up (commonly an ERP setting issue). The portal flags the mismatch, drawing departmental scrutiny.
4. Threshold violation mid-year — taxpayer crosses ₹5 crore aggregate turnover during the FY but fails to upgrade invoicing from 4-digit to 6-digit HSN. The threshold tested for current-FY reporting is the preceding FY’s turnover, but new-FY transitions are a common error point.
5. Aggregating multiple HSNs under one line — invoicing multiple goods with different HSN codes under a single “Miscellaneous” or “Sundry” line item. Section 31 of the CGST Act + Rule 46 of the CGST Rules require HSN at line-item level, not at invoice level.
6. SAC mapped to HSN format — service providers occasionally enter SAC codes into HSN fields with wrong digit count (4-digit instead of full 6-digit). Both the IRP and GSTR-1 reject these.
7. Composite supply taxed at component rates — applying separate rates to bundled items where the principal-supply rule should apply, or vice versa for mixed supplies.

How to fix wrong HSN / SAC in already-filed returns

Outward supplies (your sales)

• Amend in the next open GSTR-1 via Table 9A (amendments to B2B invoices), 9B (amendments to B2C-Large invoices), or 9C (amendments to export invoices).
• If the corrected HSN attracts a higher rate, the differential tax + interest under Section 50 is paid via GSTR-3B of the period in which the correction is made.
• If the corrected HSN attracts a lower rate (i.e., over-collection on past invoices), issue a credit note to the customer for the excess tax and reflect in GSTR-1 of the period of issue.

Inward supplies (your purchases)

• The supplier’s GSTR-1 is the authoritative source for ITC flow into your GSTR-2B; you cannot directly amend a supplier’s filing.
• Request the supplier to issue a credit note + revised invoice, or to amend their GSTR-1 via Table 9A in the next return.
• Resolving HSN / rate mismatches is one of the standard categories in any GST Reconciliation engagement — surfacing them at month-end keeps the ITC-eligibility position clean.

What changed with GST 2.0

The GST 2.0 reform (effective 22 September 2025) collapsed the prior 5-slab rate structure (0% / 5% / 12% / 18% / 28%) into a 4-slab structure (0% / 5% / 18% / 40%). The reform’s mechanics:

• HSN and SAC codes themselves did not change. The same 6-digit HSN for, say, a packaged dairy product is the same string of digits pre- and post-22-Sep-2025.
• Rate mapping changed for many HSN codes. A large number of HSN codes that previously attracted 12% (notably packaged foods, common toiletries, processed dairy) moved to 5%. Many standard consumer durables (washing machines, large TVs) at 28% moved to the 18% standard rate. Demerit goods (aerated drinks, tobacco, SUVs) at 28% + compensation cess moved to a flat 40% slab.
• Compensation cess regime restructured — the cess that previously layered on top of the 28% slab was largely subsumed into the new 40% slab. Specific sin-goods cess provisions continue per the Compensation Cess Act as amended.

ERP master data update is the operational fix. Item masters that still fetch 12% or 28% rates against HSN codes that were re-mapped on 22 September 2025 will over- or under-charge GST on every invoice — both create tax-position issues and the over-charging case carries Section 171 anti-profiteering exposure. For the post-reform slab structure in detail, see the GST Rates Explained pillar.