SAC Code in GST: A Complete Guide for Business Owners
When India adopted the Goods and Services Tax (GST), the Central Board of Indirect Tax and Customs (CBIC) introduced the Harmonised System of Nomenclature (HSN) and Service Accounting Code (SAC) systems. Together, these were crucial in streamlining the classification of goods and services. We explore the realm of SAC codes in this piece, providing an understanding of their importance and operation.
Table of content
What is the SAC Code?
The Indian government uses the SAC (Services and Accounting Code) code as a categorization system to categorise and impose taxes on the numerous services that companies offer. The type of service being provided and the relevant GST rate are identified using the SAC codes. The Harmonised System of Nomenclature, a globally accepted system for categorising and coding all products, serves as the foundation for SAC (Services and Accounting Code) codes. This technology makes it possible for GST to be compliant with international norms. It would give the government a standard framework for appropriately collaborating on and analysing sales and purchase data. Businesses utilise SAC codes to pay taxes to the government and file their GST filings.
SAC Code in GST
To identify, classify, measure, and evaluate the GST on services in India, the SAC code system is essential. It is significant to remember that all justifications for service categorization in India are based on the rules of the UNCPC system, with modifications suggested by the committee in charge of putting the SAC system into practice in India. Services falling under the SAC code are taxed at five distinct rates under the GST regime: 0%, 5%, 12%, 18%, and 28%.
Therefore, a service defaults to an 18% GST rate if it is not listed on the SAC code or does not have a specific SAC code. The government can analyse GST income from different service categories in an efficient manner since different services are assigned separate SAC codes. These SAC codes make it easier to analyse and manage income because they are closely related to certain service kinds.
Take building construction services as an example to show how a certain service is categorised using a SAC code and how it helps with tax calculation. This service is classified as group 99541, heading 9954, and has distinct SAC codes for various building subcategories, including residential, commercial, and industrial. Since this service is subject to an 18% GST rate, the service provider must add 18% GST to the invoice amount and submit the same payment to the government. To prevent confusion or disputes, the SAC code aids in precisely identifying the nature of the service and the corresponding GST rate.
How is the SAC Number allocated?
For the purposes of taxation, services are categorised using a unique six-digit number called a Service Accounting Code number under GST. The structure of SAC codes is intended to convey details about the type of service. The service category is indicated by the number 99, which they always start with. The precise type of service is further defined by the next four digits. To provide an example, let's look at the SAC code 995411 for general construction services, which includes single-family homes, multi-dwelling units, and multistory residential complexes.
The category of services is indicated by the first "99" in all SAC codes.
The principal service category, "construction services," is represented by the number "54" below.
Lastly, the "service code" of 11 specifies the distinctive characteristics of the primary service, such as "general construction services of buildings."
The primary distinction between the SAC and HSN is that the SAC defines codes for services, whereas the HSN prescribes codes, particularly for goods. Another distinction between the two is the quantity and meaning of the digits in each code; for instance, SAC codes have six digits, while HSN numbers have eight.
Use of SAC Code in GST
The GST (Goods and Services Tax) uses the Services Accounting Code (SAC) to categorise and tax the many services that companies offer. SAC codes, which are distinct six-digit codes given to each service, aid in identifying the kind of service being provided as well as the relevant GST rate. Businesses and the government can profit from the usage of SAC codes in GST in a number of ways, including:
SAC regulations contribute to the tax system's consistency by guaranteeing that companies pay the same amount of taxes everywhere in the nation.
The SAC codes facilitate the identification of the various services provided, as well as the relevant tax rates for each service.
Businesses have less work to do in terms of compliance when they use SAC codes, which streamline the tax calculation and GST return filing procedure.
By using SAC codes, the government can more effectively collect taxes and monitor and track the services provided.
Where to Mention SAC Code?
SAC for services (HSN for goods) must be mentioned by the taxpayers in the following instances:
GST Registration: All businesses subject to GST are required to disclose the categories of products and services they offer. As a result, it is crucial to provide the accurate HSN/SAC code while registering.
GST Rate: If the taxpayer knows the HSN/SAC code for goods and services, he can quickly ascertain the applicable rate of GST.
GST Invoice: The HSN/SAC code, which is determined by the overall turnover of the seller's business, must be mentioned on an invoice for goods and services.
GST Returns: The taxpayer must provide the HSN Summary at the time he files the GST Return. The details of the goods and services sold, categorised according to the HSN/SAC reported, make up the summary.
Applicability of SAC Codes
Service providers need to include SAC codes in their GSTR filings. These codes cover a wide range of services, including banking, education, and hospitality. The HSN module's chapter 99, which is dedicated to services, is where services are classified. The applicable SAC codes must be included in the GSTR forms. Below is a discussion of the prerequisites for utilising SAC codes in GSTR filings:
SAC codes are not needed for businesses with annual revenue under Rs. 1.5 crore.
Businesses that generate between Rs. 1.5 and Rs. 5 crores in revenue are required to require the relevant SAC codes.
The SAC codes for their services must also be provided by dealers or businesses with annual revenue greater than Rs. 5 crores.
To ensure compliance with GST legislation and enable accurate service reporting, service providers are required to comply with certain standards when completing the GSTR forms.
Understanding the Difference between SAC Code and HSN Code
Under the GST (Goods and Services Tax) in India, products and services are classified using the SAC (Services Accounting Code) code and the HSN (Harmonised System of Nomenclature) code. Despite the fact that both codes are intended to categorise products and services, they vary in the following ways:
Type of Classification: Goods are classified using the HSN code, whereas services are classified using the SAC code.
Digits: There are six digits in the SAC code and eight in the HSN code.
Structure: The primary service category is represented by the first two digits of the SAC code, and the chapter is represented by the first two digits of the HSN code. The specific service is represented by the following two digits of the SAC code, and the heading is represented by the next two digits of the HSN code. The sub-service is represented by the last two digits of the SAC code, while the product code is represented by the last four digits of the HSN code.
As an illustration, let's say a company offers software development services. 998314 is the SAC code for software development. The primary information technology service category is represented by the first two digits (99). The specialised software development service is represented by the next two digits (83) and the bespoke software development sub-service is represented by the last two digits (14) of the number.
In contrast, 8517.12.00 is the HSN code for mobile phones, which are sold by businesses. The electrical machinery and equipment chapter is represented by the first two digits (85) of the number. The telephone set heading is represented by the next two numerals (17). The subcategory for mobile phones is represented by the following two digits (12), and the product code is represented by the last two digits (00).
Conclusion
Business owners must recognise the significance of SAC codes before moving further with the GST Registration Process. The GST architecture relies heavily on them to classify services in an organised and consistent manner. They also make it easier to collect taxes and determine the GST rates. Since accurate classification promotes accountability, transparency, and compliance, it is essential to the successful implementation of GST. These codes are also crucial for India's inclusion into the global economy and the harmonisation of customs processes because they are extensively utilised in international trade and taxation.
FAQ
Q1. What does the SAC Code mean?
SAC represents Services Accounting Codes. SAC is used to categorise services under the GST framework, much like the HSN code is for products in India.
Q2. What is the importance of the SAC Code?
SAC regulations help to ensure consistent taxation across the country by promoting a uniform tax system. They aid in preventing uncertainty and misunderstanding regarding the categorization of services and the relevant GST rates. Additionally, they facilitate the distinction between several service categories and the corresponding tax rates, which range from 0% to 28%.
Q3. What is SAC code 998314?
Information technology (IT) design and development services are covered by this code. The common code for services is 99. The number 83 denotes the primary service category, "IT services." The number 14 denotes a thorough explanation of the type of service provided, in this case, design and development.
Q4. Who can use SAC Codes?
Service Accounting Codes (SAC codes) must be used by any person or organisation offering taxable services under the GST regime in order to properly classify and tax those services. This covers companies, experts, and service providers that have filed for GST.
Q5. Is it mandatory to mention the SAC code in the invoice?
Yes, it is required to include the Service Accounting Code (SAC) in the invoice for services rendered subject to the Goods and Services Tax (GST) system. It aids in the appropriate taxes and classification of services.
Q6. What is the penalty for non-compliance with SAC Code requirements?
Every taxpayer is required to record the right HSN/SAC Code on Tax Invoices and GSTR-1. Failure to mention the HSN/SAC correctly or at all in GST Returns and Tax Invoices would result in a penalty of Rs 50000 (Rs 25000 under CGST and Rs 25000 under SGST).
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