Every GST invoice in India must carry the correct HSN code (for goods) or SAC code (for services). Wrong code = wrong tax rate = ITC denial for your buyer + potential penalty for you. This guide covers the mandatory disclosure thresholds, how to find the right code, and what changed in FY 2026-27.
At a glance
- HSN = Harmonized System of Nomenclature (for goods) — global classification, GST follows the international standard
- SAC = Services Accounting Code (for services) — Indian classification by CBIC
- Mandatory disclosure on invoice depends on aggregate turnover: 4-digit, 6-digit, or 8-digit
- Wrong code can result in penalty up to ₹50,000 under Section 122(1)(xviii) CGST Act
- Buyer’s ITC is at risk if HSN/rate is incorrect
Mandatory HSN digits — by turnover
The number of digits required on the invoice depends on your turnover in the previous financial year:
| Aggregate Turnover (preceding FY) | HSN digits required (B2B) | HSN digits required (B2C) |
|---|---|---|
| Up to ₹5 crore | 4 digits | Optional |
| Above ₹5 crore | 6 digits | 4 digits |
| Notified exports & imports | 8 digits | 8 digits |
For services, similar thresholds apply but always with SAC (which is 6-digit by default).
Important update — FY 2026-27: CBIC notification 78/2020-CT (and subsequent amendments) has made HSN reporting on GSTR-1 mandatory at 6-digit level for taxpayers with turnover above ₹5 crore. Cumulative effect: even if your invoice shows 4 digits, your GSTR-1 must report 6 — many taxpayers get caught here.
Where HSN codes appear
The HSN classification structure:
Chapter (2 digits) → 84 = Nuclear reactors, machinery
Heading (4 digits) → 8471 = Computers and peripherals
Subheading (6 digits) → 8471.30 = Portable computers (laptops)
Tariff item (8 digits) → 8471.30.10 = Personal computers (specific)Only chapters and headings are common across countries. From 6 digits onwards, India has its own customisations.
Common SAC codes for service providers
| Service | SAC | GST Rate |
|---|---|---|
| Software development | 998314 | 18% |
| IT consulting | 998313 | 18% |
| Web design | 998315 | 18% |
| Digital marketing | 998365 | 18% |
| Accounting & bookkeeping | 998222 | 18% |
| Legal services (firm) | 998212 | 18% |
| Legal services (advocate to non-business) | 998211 | Exempt |
| Tax consultancy | 998231 | 18% |
| Architectural services | 998321 | 18% |
| Management consulting | 998311 | 18% |
| Yoga / fitness training | 999294 | 18% (5% under composition for services) |
| Construction services | 9954 (heading) | 5%/12%/18% depending on type |
| Restaurant services | 9963 (heading) | 5%/18% depending on type |
How to find the correct HSN code
Step 1: Identify the broadest category. Look at CBIC’s HSN classification chart by chapter. For services, use CBIC’s SAC list.
Step 2: Drill down by description. Use the chapter headings and notes. For ambiguous cases, use the General Rules of Interpretation (GIR) — the same rules customs uses to classify goods.
Step 3: Check the notification rate list. Once you have the HSN, check Notification 1/2017-CT(R) (for goods) or Notification 11/2017-CT(R) (for services) for the applicable GST rate.
Step 4: Consider compound descriptions. A “kit” of products may be classified by its essential character (Rule 3(b) of GIR). A bundled service offering may need careful classification — sometimes the principal supply rule applies (Section 8(a) CGST Act).
Step 5: When in doubt, get an Advance Ruling. For high-value or recurring uncertainties, the Authority for Advance Ruling (AAR) gives a binding clarification. Around ₹15,000-25,000 in legal/CA fees plus ₹5,000 government fee.
Penalty for wrong HSN
Under Section 122(1)(xviii) of the CGST Act:
- ₹25,000 OR amount of tax involved (whichever is higher), plus
- Possible interest under Section 50 if tax was undercharged
- Buyer’s ITC may be denied if the wrong HSN attracted a different (lower) rate
For repeated wrong classification, the GST officer can also initiate Section 73/74 proceedings.
Common mistakes to avoid
Using a generic 4-digit code when 6 digits is required. If your turnover crossed ₹5 crore last year, you must use 6 digits on every invoice (with B2B buyers).
Picking HSN by product name without checking the chapter notes. Chapter notes can override the obvious classification. Example: certain medical devices that look like consumer electronics get classified under Chapter 90 (medical instruments) not Chapter 85 (electrical machinery).
Ignoring the chapter heading rate when subheading is silent. If the subheading-level HSN isn’t separately rated in the notification, the chapter heading rate applies. Don’t assume “no rate” means exempt.
Same HSN, different state-specific rates. Some states (especially for liquor, tobacco, services in special economic categories) have different effective rates. Always verify state-specific notifications.
Wrong SAC for export of services. Even for export, you must use the correct SAC. The export benefit (LUT or with-tax) doesn’t change the SAC — it changes only how tax is treated.
Frequently asked questions
Q: My turnover last FY was exactly ₹5 crore. Which HSN slab am I in? A: At ₹5 crore exactly, you fall in the lower slab (4-digit). Above ₹5 crore (₹5,00,00,001 onwards), you’re in the 6-digit slab.
Q: Is HSN mandatory on B2C invoices? A: For turnover up to ₹5 crore — optional on B2C. Above ₹5 crore — mandatory at 4 digits on B2C.
Q: I sell only one type of product. Do I still need HSN on every invoice? A: Yes. HSN disclosure rules don’t depend on your product range. Every invoice needs it.
Q: I’m a freelance designer. Do I use HSN or SAC? A: SAC. Services use SAC. HSN is for goods. Web design = 998315.
Q: Can I use 8 digits even though only 6 is required? A: Yes. Higher granularity is always permitted. If your accounting system tracks at 8 digits, use them — it gives buyers more clarity.
Q: What if I genuinely don’t know the right HSN? A: Two safe options: (1) use the broadest applicable category at the highest GST rate (over-paying tax) and reconcile later via amendment, or (2) get an Advance Ruling. Don’t guess on under-tax — that’s where penalties come.
Generate invoices with proper HSN/SAC
All four of our invoice generators have a dedicated HSN/SAC field on each line item — populate it correctly per the rules above. The Tax Invoice and Goods Invoice generators add the HSN to the auto-generated PDF in the format Rule 46 requires:
Open Goods Invoice Generator (Bill To + Ship To) →
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Last updated: April 2026. Reviewed by Practising Chartered Accountants. This guide is for general information only and does not constitute professional advice. HSN classification disputes can have significant consequences — consult a qualified Chartered Accountant for your specific products or services.