An Explainer on Service Accounting Code (SAC) Under GST

Abhishek Kumar

30 Mar, 2024

The Goods and Services Tax, popularly referred to as GST, was introduced to integrate the myriad of indirect taxes under the previous tax regime and to bring a comprehensive unified tax structure. In order to ensure uniformity across the nation, it was necessary to classify these goods and services uniformly into various categories to ensure adherence. This was further meant to expedite the tax revenue collection. In pursuance of the same, the Central Board of Excise and Customs (CBEC) came up with the Service Accounting Code (SAC), which is central to the classification and identification of goods and services for taxation purposes. This facilitates the government to analyze the revenue generated under each category of goods and services. In this article, we will delve into the SAC under GST, and we will try to unravel its complexities.

What is SAC?

• In order to understand how SAC operates under the GST regime, we must have a basic understanding of what SAC is. ‘SAC’ is an abbreviated form of Service Accounting Code, which is, in general, used by businesses as a ubiquitous solution for handling their finances. Service Accounting Code enables these businesses to track their inflow and outflow, which gives them an overall idea of their finances. It is essentially an alphanumerical code that is unique to the services attached to it.
• Similarly, under GST, SAC is attached to each category of goods and services, and thus, it aids in the systematic application of appropriate tax rates to each category. Each distinctive category of goods and services is assigned a unique and one-of-a-kind Service Accounting Code, which providers are required to provide in their invoices. This ensures the precise application of the applicable GST Rate to the goods and services they provide, which ultimately empowers them to accurately calculate their tax obligations.

How is SAC different from the HSN Code?

• Both SAC and HSN Codes are used to classify goods and services. HSN is a globally recognized nomenclature which is followed by many countries to classify goods and services. This ensures homogeneity and consistency across the globe. But there are a few differences between the two, such as:
• Service Accounting Code codes are exclusively used to classify goods, whereas HSC codes are assigned to goods and are designed to distinctively identify different types of goods.
• Service Accounting Code codes consist of a 6-digit arrangement, capturing the essence of each service category, whereas HSC codes extend to 8 digits.

Importance of SAC

• GST system has incorporated the use of Service Accounting Code in classifying the various categories of services provided. A unique Service Accounting Code is assigned to each category of services, which helps in the levying of appropriate tax rates and ensures seamless tax revenue collection.
• Apart from aiding the government in keeping track of revenue collection and preventing tax evasion, SAC helps businesses comply with the GST regulations¹ and simplifies the calculation of tax against each category of service offered by them.

Structure of SAC

The structure and framework of SAC is fundamental to its working. The code begins with sections, each encompassing a wide range of services. These sections are further subdivided into headings, and these headings are further carefully deconstructed into subheadings, thereby precisely defining the essence of each service. This arrangement ensures that each category is accurately positioned within the classification system, thereby encouraging precise and consistent taxation.

Determining Appropriate SAC

It is essential to select an appropriate SAC to ensure appropriate tax collection. This can be a herculean task as it requires a comprehensive understanding of the services being offered. There are multiple factors that are considered before deciding on a SAC for a particular category of goods and services, such as the primary essence of the service and its intended purpose. This task could get complicated when services encompass diverse features, and then for such a category, it becomes even more necessary to identify the dominant characteristic or feature to ascertain an appropriate and suitable SAC.

SAC and Tax Liability Calculation

• The SAC chosen for a particular service has a direct and profound impact on tax liability. It serves as the guiding factor in determining the applicable tax rate for the service. This, in turn, directly influences the financial aspect of the business transaction. Moreover, SACs also influence the utilization of Input Tax Credit (ITC), which means that by ensuring the selection of an accurate SAC, businesses can optimize their ITC benefits without facing any downsides.
• In recent developments, there have been attempts to simplify the SAC structure and make it user-friendly. The government is trying to clarify the confusion around the description of services in order to foster a robust taxation framework.

SAC and Invoice

• As per the government guidelines, mention of SAC and HSN Codes on tax invoices is legally mandatory for businesses with a turnover over Rs. 5 crores, and for a business with a turnover of below 5 crores, a 4-digit SAC code has been mandated.
• Failure to comply with this legal regulation may attract adverse consequences; for instance, an invoice without SAC may be treated as invalid, and in extreme cases, it may also attract a pecuniary penalty as per the applicable rules as well.

Common Challenges

• Determining an appropriate SAC is not an easy task and not without challenges; at times, the essence of services may be ambiguous, and it may lead to confusion in selecting an appropriate SAC. On top of that, the consequences of selecting an incorrect SAC can result in compliance issues and erroneous tax payments, resulting in penalties. Therefore, businesses or taxpayers are advised to seek expert advice and professional help.
• Furthermore, selecting a correct SAC isn’t a one-time task; it is an ongoing process that requires due diligence and precision. Businesses must maintain thorough records of SAC selection for every service they offer. These records are essential during audits and verification processes and serve as evidence of compliance or accurate tax payments.

Conclusion

The Service Accounting Code emerges as a cornerstone within the GST system, effectively shaping the taxation of services. It ensures accurate tax collection and furthers seamless compliance by the taxpayers. As taxpayers and businesses navigate through the intricacies of GST regulations and compliances, it has become imperative to understand the workings of SAC to ensure each service offered by the company matches with the appropriate SAC to ensure precise tax calculation. Businesses that embrace these technological advancements in GST stand to gain not only in terms of efficient compliance but also reduce the possibility of any errors, which could attract heavy penalties.

Read our Article: Healthcare Services under GST: A Complete Analysis

FAQs

1. https://gstcouncil.gov.in/cgst-rules