HSN & SAC Codes Under GST: Mandatory Digits (4, 6, 8), Rules & Penalty Guide 2026
Rahul Verma
· Direct & Indirect Tax Specialist· 7 min read
Harmonized System of Nomenclature (HSN) and Services Accounting Codes (SAC) are the universal language of Indian taxation. Without an accurate HSN/SAC code, tax authorities cannot classify products, determine applicable tax slabs (5%, 12%, 18%, 28%), or validate Input Tax Credit claims. Following Notification No. 78/2020-Central Tax, strict digit thresholds are enforced across all B2B transactions. Here is how to ensure complete HSN/SAC compliance.
- ✓Businesses with aggregate annual turnover up to ₹5 Crores must mandatorily mention a minimum of 4 digits of HSN code on B2B tax invoices.
- ✓Businesses with aggregate annual turnover exceeding ₹5 Crores must mandatorily declare a minimum of 6 digits of HSN code for all B2B and B2C supplies.
- ✓8-digit HSN codes are compulsory for all export and import transactions, as well as specified chemical and metal commodities.
- ✓Mentioning incorrect or missing HSN codes on tax invoices violates Rule 46 and attracts general penalties up to ₹50,000 under Section 125 of the CGST Act.
What are HSN and SAC codes and how are they structured?
The Harmonized System of Nomenclature (HSN) is an internationally standardized system of names and numbers developed by the World Customs Organization (WCO) to classify goods.
In India, HSN codes for goods follow an 8-digit hierarchical tree:
• First 2 digits: Chapter (e.g., Chapter 84: Nuclear reactors, boilers, machinery).
• Next 2 digits: Heading (e.g., 8471: Automatic data processing machines / computers).
• Next 2 digits: Sub-heading (e.g., 8471.30: Portable automatic data processing machines / laptops).
• Last 2 digits: National Tariff Item (e.g., 8471.30.10: Personal computers / laptops).
For services, India uses Services Accounting Codes (SAC), which always begin with the digits '99' (e.g., SAC 998314 for IT and software development services).
Mandatory HSN digit requirements: The turnover matrix
Notification No. 78/2020-Central Tax established the mandatory digit framework based on prior financial year turnover:
| Aggregate Annual Turnover (AATO) | Supply Type | Minimum Mandatory HSN Digits | Statutory Rule |
|---|---|---|---|
| Up to ₹5 Crores | B2B Supplies (Registered Buyers) | 4 Digits | Mandatory on all tax invoices |
| Up to ₹5 Crores | B2C Supplies (Unregistered Consumers) | Optional (Recommended 4 digits) | Optional under Notification 78/2020 |
| Exceeding ₹5 Crores | B2B Supplies | 6 Digits | Mandatory under Notification 78/2020 |
| Exceeding ₹5 Crores | B2C Supplies | 6 Digits | Mandatory under Notification 78/2020 |
| Any Turnover | Export / Import of Goods (Zero-rated) | 8 Digits | Mandatory for Customs and ICEGATE integration |
| Any Turnover | Chemicals & Specified Precious Metals | 8 Digits | Mandatory per special notifications |
Penalties for wrong or missing HSN codes on invoices
Under Rule 46(g) of the CGST Rules, an invoice that omits or misstates the mandatory HSN/SAC code is an invalid tax invoice.
Under Section 125 of the CGST Act (General Penalty), any person who contravenes any provision of the Act or Rules is liable to a penalty up to ₹25,000 CGST + ₹25,000 SGST (Total ₹50,000).
Furthermore, tax officers can treat supplies classified under lower-digit or incorrect HSNs as tax evasion if the wrong code applied a 12% GST rate instead of the statutory 18% slab, recovering differential taxes with 18% interest.
HSN Code Table 12 in GSTR-1
Table 12 of GSTR-1 requires summary disclosure of outward supplies by HSN code. The total taxable value and tax reported in Table 12 must mathematically reconcile with Table 4, 5, 6, and 7 to avoid portal validation errors.
How Dyopact auto-suggests compliant HSN & SAC codes
Instead of flipping through 200-page tariff schedules, Dyopact auto-suggests valid 4-digit, 6-digit, and 8-digit HSN and SAC codes based on product keywords, automatically verifying that line items match your turnover mandate.
Related Dyopact Tools & Templates
Frequently Asked Questions
Is HSN code mandatory for service providers?
Service providers must declare Services Accounting Codes (SAC), which always start with '99'. The digit requirements mirror goods: 4 digits if turnover is up to ₹5 Crores, and 6 digits if turnover exceeds ₹5 Crores.
Can a buyer claim ITC if the seller puts a 2-digit HSN code on an invoice?
Tax authorities have issued notices questioning ITC where supplier invoices fail to declare the mandatory 4 or 6-digit HSN code required under Notification 78/2020. Buyers should reject invoices that do not meet mandatory digit rules.
What is the HSN code for software development and IT services?
Software design, cloud infrastructure, and custom software development fall under SAC 998314 (Information technology design and development services) or SAC 998313 (Information technology consulting and support services).
Where can I search and verify official HSN codes?
Official HSN and SAC codes can be verified on the CBIC GST Portal (cbic-gst.gov.in) or through the GSTN Portal search tool under Services > User Services > Search HSN / Service Classification Code.
Rahul Verma
Direct & Indirect Tax SpecialistOver a decade advising Indian businesses on GST Rule 46 invoicing, E-Way Bill transit compliance, and corporate tax structuring.