Understanding SAC Code & How It Works?

What is SAC Code

SAC (Services and Accounting Code) code is a classification system used by the Indian government to classify and levy taxes on various services businesses provide. The SAC codes are used to identify the type of service being offered and the applicable GST rate for that service.

The HSN code is applicable to Indian goods. It is based on the World Customs Organization’s multipurpose nomenclature code utilized for classifying goods uniformly worldwide. SAC code is based on the United Nations Central Product Classification (UNCPC).

SAC (Services and Accounting Code) codes are based on the Harmonized System of Nomenclature, an internationally recognized system for classifying and codifying all the products worldwide. This system enables the compliance of GST based on international standards. It will provide a common structure to the government for the proper collaboration of data related to sales and purchases and analyze the same. SAC codes are used by businesses to file their GST returns and pay taxes to the government.

SAC codes enable classification and taxation of services under five tax slabs: 0%, 5%, 12%, 18%, and 28%. Services that are not listed under SAC codes are automatically taxed at 18%.

This coding system allows the government to efficiently analyse GST collections for different services.

List of SAC Codes and Description

Under the GST system in India, services are classified using Service Accounting Codes (SAC) to determine tax rates, exemptions, and rules. SAC codes for GST are unique identifiers assigned to different services for GST purposes. Check the list of SAC codes and description here

What is the SAC number?

SAC code consists of 6 digits. Since the services are covered under Chapter 99, the first 2 numbers of the 6-digit SAC code are 99. The other 4 digits explain the nature of the service. Breaking up the 6-digit SAC in GST. For example, the SAC for Information technology (IT) design and development services is 998314.

• The first two digits in SAC are the same for all services, i.e., 99.
• The middle two digits represent the major nature of services, in this case, IT services
• The last two digits represent the detailed nature of services, in this case, Design and Development services.

The main difference between the HSN and SAC is that HSN prescribed codes are meant specifically for Goods, whereas SAC specifies codes for services. Other difference between both of them is the number of digits in their code and their relevance, for example, the HSN code has 8 Digit codes, whereas the SAC has 6 digit codes.

What is the use of Service Accounting Code (SAC) in GST?

The use of SAC (Services Accounting Code) in GST (Goods and Services Tax) is to classify and levy taxes on various services provided by businesses. SAC codes are unique six-digit codes assigned to each service, and they help identify the type of service being offered and the applicable GST rate for that service.

The use of SAC codes in GST has several benefits for businesses and the government, such as:

• Service Identification - SAC codes assign a unique number to each service, making it easier to identify and categorize different services. This organized system improves the classification and tracking of services for tax purposes.
• GST Rate Determination - SAC codes play a key role in determining the correct GST rate for specific services. GST taxpayers can easily find the applicable tax rate by referring to the SAC code linked to the service they offer.
• GST Registration - GST taxpayers must use SAC codes when registering on the GST portal. These codes clearly define the services provided by the taxpayer, ensuring compliance with GST regulations.
• Invoicing - GST taxpayers are required to include the relevant SAC code on their invoices when billing clients for services. This ensures transparency in tax calculations and helps clients understand the impact of GST on the services they receive.
• GST Returns - Taxpayers must report service transactions using the correct SAC codes when filing GST returns. This is essential for accurate tax reporting and compliance with GST regulations.

Differences between SAC Code and HSN Code

The SAC (Services Accounting Code) code and HSN (Harmonized System of Nomenclature) code are both classification systems used to identify goods and services for tax purposes under the GST (Goods and Services Tax) in India. While both codes are designed to classify goods and services, they differ in various ways. Here are the major differences between HSN code and SAC code -

Example:-

Suppose a business provides the service of software development. The SAC code for software development is 998314. The first two digits (99) represent the major service category of Information Technology. The next two digits (83) represent the specific software development service, and the final two digits (14) represent the sub-service of custom software development.

On the other hand, if a business sells a mobile phone, the HSN code for mobile phones is 8517.12.00. The first two digits (85) represent the chapter on electrical machinery and equipment. The next two digits (17) represent the heading of telephone sets. The next two digits (12) represent the subheading of mobile phones, and the final two digits (00) represent the product code.

Is it mandatory to mention the SAC code in the invoice?

As per the GST (Goods and Services Tax) rules, it is mandatory for service providers to furnish the SAC (Services Accounting Code) if their annual aggregate turnover exceeds Rs.5 crore. For businesses earning below Rs.5 crore, a 4-digit SAC code must be furnished for B2B (Business-to-Business) transactions.

This requirement helps properly classify services and ensures that the correct GST rate is applied to the transaction. The SAC code also helps the government to monitor and regulate the collection of taxes and ensure compliance with the GST law.

Businesses with an annual aggregate turnover of up to Rs. 5 crores must mention the HSN (Harmonized System of Nomenclature) code for goods and a 4-digit SAC code for services on their invoices. However, if a business's turnover exceeds Rs. 5 crores, it must use an 8-digit HSN code for goods and a 6-digit SAC code for services.

Length of SAC Code for GSTR-1 and Invoice

Any service supplier having an aggregate turnover exceeding Rs.5 crores in the previous year is required to furnish all six digits of the SAC code in the invoices as well as while filing GSTR-1. However, if the annual aggregate turnover of the service provider is less than Rs.5 crore, then the following rules are applicable -

If you fail to comply with the above provisions, it can lead to a penalty of Rs.50,000 under the IGST Act or Rs.25,000 under CGST and SGST.

It is important to learn about SAC codes and ensure you mention the correct codes within your invoice to be compliant with GST. If you are someone who finds taxes complicated or needs help with GST-related services, you can consider seeking professional help. Get in touch with Tax2win’s tax experts, who can help you with GST registration and GST filing services. Hire an expert now!