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.

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.

What is the SAC number?

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, HSN code has 8 Digit codes whereas SAC has 6 digit codes.

GST rates and SAC code of different services

The SAC codes and GST rates against the different services give the dealers and business people a clear understanding of the tax levied on the services they offer or the services they receive.

What is the use of SAC code 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:

• Uniformity: SAC codes help create uniformity in the tax system, ensuring that businesses are taxed consistently across the country.
• Identification of services: The SAC codes make it easier to identify the different types of services offered and the applicable tax rates for each service.
• Compliance: Using SAC codes simplifies the process of tax calculation and filing of GST returns, reducing the burden of compliance for businesses.
• Monitoring and tracking: The government can use SAC codes to monitor and track the services offered and collect taxes more efficiently.

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 the following ways:

• Nature of Classification: The SAC code is used to classify services, while the HSN code is used to classify goods.
• Digits: The SAC code consists of six digits, while the HSN code consists of eight digits.
• Structure: The first two digits of the SAC code represent the major service category, while the HSN code's first two digits represent the chapter. The next two digits of the SAC code represent the specific service, while the HSN code's next two digits represent the heading. The final two digits of the SAC code represent the sub-service, while the HSN code's final four digits represent the product 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.