HSN Code (Harmonized System of Nomenclature)

HSN stands for Harmonized System of Nomenclature — an internationally standardized system of names and numbers to classify traded products. In India's GST system, HSN codes classify goods while SAC codes classify services. If you sell physical products, you use HSN codes. If you provide services (design, development, consulting), you use SAC codes.

HSN codes are 4, 6, or 8 digits depending on your turnover. Businesses with turnover up to ₹5 crore use 4-digit codes. Above ₹5 crore, 6-digit codes are required. The codes are hierarchical: Chapter (2 digits) → Heading (4 digits) → Subheading (6 digits) → Tariff Item (8 digits). For example, 8471 is "Automatic data processing machines" (computers).

Why does this matter for invoicing? Under GST, your invoices must include the correct HSN or SAC code for each line item. Using the wrong code can result in incorrect tax rates being applied, ITC claims being rejected, and scrutiny during audits. The CBIC website maintains the full HSN/SAC code directory.

Freelancers selling digital products (themes, plugins, digital downloads) need to determine whether their sale is classified as "goods" (HSN) or "services" (SAC). SaaS subscriptions are generally classified as services under SAC 998314. One-time software license sales may fall under HSN. When in doubt, consult your CA.

The classification matters because it determines your GST rate. Most IT services fall under 18% GST, but some goods categories have different rates. Getting the code right from day one saves you from retrospective tax adjustments.