The Goods and Services Tax (GST) is a broad-based, multi-stage, destination tax that is applied to all value additions in India. Introduced on July 1, 2017, GST consolidated the indirect tax structure by integrating a complex set of central and state levies like VAT, excise duty, and service tax, among others.
Perhaps the most important aspect of GST implementation is the classification of goods and services, as it determines the relevant tax rate and compliance requirements. Goods and services that are GST compliant are classified under the Harmonised System of Nomenclature (HSN) and Service Accounting Codes (SAC), ensuring consistency and reducing conflicts on the applicability of tax.
The GST Council, a constitutional body with representatives from both the Centre and the States, fixes the rates of different goods and services. They are classified into five slabs: 0%, 5%, 12%, 18%, and 28%, depending on the nature, purpose, and requirement of the product.
For companies, understanding GST rates and classifications is vital to ensure proper tax invoicing, correct filing of returns, and optimal use of input tax credit. For customers, it ensures price transparency. Thus, classification and rate under GST is the backbone of the tax regime, ensuring equitable taxation and enabling unhindered movement of the economy.
What are SAC Codes?
SAC codes, officially known as Service Accounting Codes, are a classification system used under India’s Goods and Services Tax (GST) regime to classify and signify different services in order to tax them. These codes are allocated by the Central Board of Indirect Taxes and Customs (CBIC) and are based on the international system developed by the World Customs Organisation. While goods are classified in terms of the Harmonised System of Nomenclature (HSN), services are categorised in terms of SAC codes.
Every SAC code is a six-digit code where the first two digits (99) are the same for all services, and the next four digits identify the specific nature of the service. For example, SAC code 998313 corresponds to “Legal documentation and certification services relating to patents, copyrights, and other intellectual property rights.”
SAC codes are extremely important to service providers for a number of reasons. For correct GST filing, proper classification, and compliance, using the right SAC code is crucial. GST rates on services depend on SAC classification. While most services attract an 18% GST rate, others could be exempt or fall into a lower or higher slab. Misclassification may result in erroneous tax payments and legal ramifications. Proper SAC classification allows businesses to avail of the corresponding input tax credits.
SAC codes are vital for the proper management of GST on services since they ensure lucidity, transparency, and uniformity in taxation across industries and states.
List of SAC Codes Under GST
Service Accounting Codes (SAC) are required for categorisation of services under India’s Goods and Services Tax (GST) regime. Each SAC is a six-digit number, with the first two digits as ’99’, which indicates the service sector, and the remaining four digits indicate the service category. Having a standard coding assists in uniformity of service classification, assists in establishing the relevant GST rates, and facilitates compliance.
| SAC Code | Description |
| 9954 | Construction services |
| 995411 | General construction services of single-dwelling or multi-dwelling residential buildings |
| 995412 | General construction services for industrial buildings |
| 995413 | General construction services for commercial buildings |
| 995414 | General construction services for other non-residential buildings |
| 995415 | General construction services of other buildings n.e.c. |
| 9961 | Services in wholesale trade |
| 996111 | Services in the wholesale trade of agricultural raw materials and live animals |
| 996112 | Services in the wholesale trade of food, beverages, and tobacco |
| 996113 | Services in wholesale trade of household goods |
| 996114 | Services in wholesale trade of machinery and equipment |
| 996115 | Services in wholesale trade of other intermediate products, waste, and scrap |
| 996116 | Services in wholesale trade of textiles, clothing, and footwear |
| 996117 | Services in wholesale trade of other goods |
| 9962 | Services in retail trade |
| 996211 | Services in the retail trade of food, beverages, and tobacco |
| 996212 | Services in retail trade of household goods |
| 996213 | Services in retail trade of cultural and recreation goods |
| 996214 | Services in retail trade of information and communications equipment |
| 996215 | Services in retail trade of other goods |
| 9971 | Financial services |
| 997111 | Services of financial transactions, except investment banking |
| 997112 | Investment banking services |
| 997113 | Financial consultancy and advisory services |
| 997114 | Services auxiliary to financial services, except insurance and pension funding |
| 997115 | Services of holding financial assets |
| 9983 | Other professional, technical, and business services |
| 998311 | Legal services |
| 998312 | Accounting, auditing, and bookkeeping services |
| 998313 | Tax consultancy and preparation services |
| 998314 | Business and management consultancy services |
| 998315 | Public relations services |
| 998316 | Advertising services |
| 998317 | Market research and public opinion polling services |
| 998318 | Technical testing and analysis services |
| 998319 | Other professional, technical, and business services n.e.c. |
| 9992 | Education services |
| 999210 | Pre-primary education services |
| 999220 | Primary education services |
| 999230 | Secondary education services |
| 999241 | Higher education services |
| 999242 | Specialized education services |
| 999243 | Other education and training services |
| 999249 | Other educational support services |
This is not an exhaustive list, but it shows the classification and hierarchy of SAC codes under GST. For the exhaustive list and latest information, refer to the official GST resources or the Central Board of Indirect Taxes and Customs (CBIC).
Why are SAC Codes Important?
SACs (Service Accounting Codes) are critically important in India’s GST (Goods and Services Tax) structure as they allow for the systematic categorisation and taxation of services. These six-digit numerical codes are meant to uniformly identify services across the country, in much the same way that HSN codes are used to identify products.
SAC codes play an essential role in the proper handling of GST with regard to services. They help ensure tax lucidity, transparency, and efficiency, as well as protect businesses from compliance failures and financial losses.
1. Correct Classification of Services
SAC codes help identify and classify a wide variety of services with precision. This is needed because every service can be subject to a varying GST rate or could even be exempt. Accurate classification prevents confusion and enables enterprises to comply with legal norms.
2. Appropriate Usage of GST Rates
Each SAC code is associated with a given GST rate (0%, 5%, 12%, 18%, or 28%). The proper SAC is used to ensure the correct tax rate is utilised when making an invoice. Misclassifying can cause underpayment or overpayment of tax, incur penalties, or result in a loss of government revenue.
3. Simplifying Filing and Compliance
While filing GST returns (like GSTR-1 or GSTR-3B), the services being offered by businesses have to be reported using SAC codes. Using the right code streamlines the filing process and ensures the reported information is in sync with invoices and accounting books.
4. Eligibility for Input Tax Credit
Proper SAC coding enables companies to correctly claim Input Tax Credit. Inaccurate classification results in rejection of ITC or withholding of refunds, and this impacts cash flow directly.
5. Reducing Legal Conflicts and Audit Risks
Application of SAC codes in a clear and consistent manner minimizes the risk of conflicts with tax authorities and helps companies during audits. It reflects a commitment to tax compliance and careful record-keeping.
6. Consistency Throughout India
SAC codes are uniform throughout India, facilitating a mutual language of classification for services in all states. This makes compliance and reporting smooth, particularly for companies that have operations in more than one state.
What Happens if You Miss SAC Codes in GST Forms, Returns, or Invoices?
Omission or erroneous mention of SAC (Service Accounting Codes) in GST invoices, forms, or returns can cause issues with compliance and business operations for firms. SAC codes are not arbitrary notations; they are vital to tax accuracy, compliance, and the efficient operation of business processes. Omitting them may entice financial, operational, and legal consequences. For transparency and avoiding complications, it is crucial that all GST invoices and returns have the relevant SAC codes.
1. Errors in Tax Calculation and Filing
SAC codes define the character of the service and the applicable GST rate. If the incorrect SAC code is entered, it can lead to the imposition of an inappropriate tax rate. Payment of less or more tax than needed can result in higher liabilities, interest, and penalties.
2. Rejection or Delay in Input Tax Credit (ITC)
For recipients of service, invoices without SAC codes could be considered incomplete according to GST law. These invoices can be rejected by tax authorities or the GST portal matching system (in GSTR-2B/GSTR-3B). This can result in denied or delayed ITC claims, which can negatively impact working capital.
3. Legal and Regulatory Non-compliance
Invoices shall have the following information, as prescribed under Rule 46 of the CGST Rules:
- Description of the service.
- SAC codes.
Omitting this information can lead to a non-compliant invoice, which can attract penalties under Section 122 of the CGST Act and subject the company to inspection by GST authorities.
4. Complications During the Audit or Assessment
Failure to use SAC codes may complicate service classification during audits and assessments. Authorities may charge penalties or demand payment based on estimated classification. This issue raises concerns about the credibility of the company as well as its compliance culture.
5. Conflicts and Loss of Reputation
Suppliers and clients can voice their concerns in case invoices are sent without SAC codes or discrepancies are found in different documents. This can lead to billing and tax contention, negatively impacting business relations and image.
6. Portal and System Errors
Many GST returns, including GSTR-1, are system-driven and could autofill information by utilising codes. In case the SAC codes are missing or erroneous, then autofill and matching could go awry. Reconciliation can be challenging. Return discrepancies can lead to notifications.
Conclusion
SAC codes are essential in the GST system, allowing for uniform classification and taxation of services throughout India. They aid in the proper application of tax rates, ease return filing, ensure accurate invoicing, and allow for smooth input of tax credit claims. Discrepancies or inaccuracies in SAC codes can result in non-compliance, penalties, and financial problems. Hence, it is necessary that businesses and service providers are well informed and use the proper SAC codes in all GST documents. Complete comprehension and implementation of SAC rules heighten legal adherence, operational effectiveness, and trust in the GST system.
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