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What is an HSN Code? A Complete Guide for Businesses

Published on October 15, 2023 • 4 min read

If you have ever received or generated a formal tax invoice in India, you have likely seen a column titled "HSN" or "SAC". Understanding what this code means and when you are legally required to include it is critical for running a compliant business under the GST regime.

The Definition: Harmonized System of Nomenclature

HSN stands for Harmonized System of Nomenclature. Developed by the World Customs Organization (WCO), it is an internationally accepted product coding system used to maintain uniformity in the classification of goods globally. Currently, over 200 countries use this system to classify more than 5,000 product groups.

India adopted the HSN classification system for Customs and Central Excise, and later ported it over to the Goods and Services Tax (GST) system. By using these codes, the government can easily track the movement of specific goods and apply the correct tax rate without ambiguity.

HSN vs. SAC: What is the Difference?

While HSN is used to classify physical goods, the Services Accounting Code (SAC) is used to classify services. If you run a freelance graphic design business, a consulting firm, or a digital marketing agency, you will use SAC codes on your invoices instead of HSN codes. Both serve the exact same purpose within the GST system: standardizing classification.

Who Must Include HSN Codes on Invoices?

Not every single business is strictly required to include HSN codes. The GST council has laid out rules based on annual aggregate turnover (AATO):

  • Turnover up to ₹5 Crores: A 4-digit HSN code is mandatory for B2B tax invoices. For B2C invoices, it is optional.
  • Turnover above ₹5 Crores: A 6-digit HSN code is absolutely mandatory for all tax invoices (both B2B and B2C).
  • Import / Export: An 8-digit HSN code is mandatory for export and import documents regardless of the business turnover.

How to Add HSN to Your BillBano Invoices

When creating an invoice using BillBano's free generator, you can easily add HSN codes. You can customize the table column headers to include an "HSN/SAC" column next to the Item Description. By doing this, you ensure that your invoices remain compliant with Indian tax audits without needing expensive accounting suites.