If you are running any business or providing services, then you have heard about HSN (Harmonized System of Nomenclature) and SAC (Services Accounting Code) codes, mostly in need in dealing with GST (Goods and Services Tax) in India, especially while billing and taxations. But in financial services, there’s a bit of variation. Okay, now, let’s break this down so it is not rocket science.
What Are HSN Codes and SAC Codes?
- HSN Code: This is a global system of classifying goods. It makes tax calculation simpler because it assigns a specific code to every product.
- SAC Code: On the other hand, this is a code used in classifying services. Because financial services are services, the SAC code is what you need.
Financial Services and Their SAC Codes
Financial services, including banking, insurance, and investment-related services, are housed under a single SAC code, hence making it easier to calculate tax in GST.
Here is the parent SAC code for financial services:
- SAC Code 9971 – This is the generic code of all financial banking and also all insurance services. There are various sub-heads wherein specific services are categorized.
Some examples of services that come under SAC Code 9971 include:
- 997111: Central banking services, which include monetary policies or financial institution regulation services.
- 997119: Other financial services including wealth management, investment consultancy, or mutual fund services.
- 997133: Portfolio management services or asset management.
These codes enable the government to follow the service tax and prevent businesses from getting confused while making dealings with various kinds of financial services.
Why Are SAC Codes Important?
- Compliance: Proper usage of the SAC code ensures that one’s business is always complying with GST rules and regulations.
- Accuracy: The right code will ensure that the taxes calculated are accurate and no penalty or mistake can be made.
- Transparency: It clears both the government and the customer about the kind of service you are offering and the tax applicable.
How to Use SAC Codes for Your Financial Services?
- Identify the Service: Decide what type of financial service you are offering-for example, insurance, banking, or investment advice.
- Find the SAC Code: If your service falls under SAC Code 9971 or any subcategory thereof, it is a permissible service.
- Use in Invoicing: Proper and accurate inclusion of the SAC code would ensure the correct billing of GST.
GST Rates for Financial Services
Financial services are taxed at 18% on GST. But may vary a percentage according to the kind of service, say, for example, a life insurance policy. So always refer back to the respective percent before providing any financial service.
Quick Tips
- Keep a list handy about your SAC codes of financial services.
- In case you are unsure which code should be used for the service, you just consult a tax consultant, or an accounting software would automatically suggest the right SAC code.
Conclusion
In a nutshell, although it seems complex, SAC codes in finance can be understood quite simply. They ensure that your business is compliant in all the tax calculations it has done and transparent in terms of government and client relations with them.
This means that proper usage of SAC codes will do away with unwanted complications and keep your financial services in operation.
Also Read:
A Guide to HSN Codes for Support Services
HSN Code For Ms Pipe
Frequently Asked Questions
What is HSN code vs SAC code? Why should I care?
HSN codes classify goods, whilst SAC classifies services under the GST. If one offers financial services, it is most convenient to be able to have SAC codes so that the right invoices are issued, tax compliance is met, and errors are avoided if the filing has to be done under GST.
For which SAC code do I use for financial services?
Financial services fall in a common category of SAC Code 9971, which includes a host of such types of activities as banking, insurance, and investment management. Each of these may have some very detailed sub-codes.
Why do I need to have SAC codes in my financial services?
SAC codes ensure that your business adheres to the GST laws. Using a proper code will calculate the accurate GST amount while keeping all your records safe, thus bringing in transparency for any of your customers’ invoices and clarity to the tax authorities as well, for every invoice.
Do I have to include SAC codes in every invoice?
Hence, it is mandatory that one should include SAC codes while giving his invoices if he receives services under GST. This ensures the right amount of tax is applied to one’s services and there would not be any complications in returns of GST.
What is the rate of GST for financial services?
Most financial services have a GST of 18%. But some services, like life insurance, are charged at higher rates. Thus, do check the correct GST rate basis the type of service
Do SAC Codes exist for the various financial services?
Yes, although all financial services fall under a single SAC Code 9971, it has sub-codes to classify services as well, such as:
997111 Central banking.
997119 is for investment advisory and wealth management.
997133 applies to portfolio management.
How do I determine which SAC code I want?
Determine what type of financial service you offer banking or insurance service may fall into SAC Code 9971. Then, you will go under the subcategory that best describes the type of service you are offering. Alternatively, you may refer to GST resources or a tax professional.
What happens if I make a mistake on the SAC code?
A wrong SAC code would lead to some miscalculations of tax; whereas the wrong SAC code will lead to incorrect taxes, penalties, or delayed return of tax proceeds amongst others. He should keenly ensure that the code is correctly written before issuing the invoices.
Are SAC codes and tax rates for financial services changing?
The SAC codes themselves are generally stable, but GST rates or rules do vary over time. It is helpful to be aware of fluctuations in tax rates or classifications of services, which may affect your invoicing and tax returns.
Where can I find the SAC code for my specific financial service?
SAC codes are available on the official GST portal as well as through a tax expert. Alternatively, you could be using accounting software that directly relates and assigns the correct SAC code for a specific service rendered by your business.
