HSN and SAC Code:

a. How to handle SAC coding system

Service Accounting Code (SAC) is a six digit classification scheme for services taxable under GST. SAC
consists of three levels - section, heading and Group. Taxable services are tagged under Group. Every
taxable service shall have a six digit code, in which first four digits represent heading, 5 th digit represent
group and 6th digit represent taxable service.

An extract of SAC –
Applicable GST rates on taxable services are 0%, 5%, 12%, 18% and 28%.

SAC coding system can be achieved in ERP Cloud by using product category fiscal classification. This
functionality allows a hierarchy of up to five levels and uses the standard hierarchical features. It allows
associating the classification codes specific to India. This is explained with the help of an example.

Example

Service Code Taxable Services Applicable GST Rate

996511 Road transport services of Goods 5%
996601 Rental services of road vehicles 5%
997133 Accident and health insurance 18%
services
998321 Architectural advisory services 18%

Create Product Category Fiscal Classification

In this scenario there are two distinct tax rates 5% and 18%. Create two product category fiscal
classifications (PC) for each distinct tax rate. Opt for two levels (level 1 & 2 nodes) for each PC. All the
service codes on which GST levied at 5% are grouped as child nodes under 5% level 1 node. Respectively
all the service codes on which GST levied at 18% are grouped as child nodes under 18% level 1 node.

For a typical organization that renders or receives taxable services falling under different GST rates, need
to create a level 1 node for each GST tax rate. Under each level 1 node group service codes (chargeable
at same GST rate) as child nodes.
Prefix of two digits AA/CC added to child nodes – In future if taxation authority changes GST rate on any
service code then it is easy to maintain. For example GST rate on service code 998321 Architectural
advisory services is changed from 18% to 28% then user can end date existing child node CC998321 that
represent 18% rate. At the same time create new child node under level 1 node DD_IN_GST_SAC to
represent 28% GST rate.

To configure product category fiscal classification –

1. Login as Tax Manager

2. From navigator console, navigate Setup and Maintenance
3. Search for the task ‘Manage Product-Based Fiscal Classifications’
4. Create Level 1 Node with following attributes

Attribute Value Comments

Code AA_IN_GST_SAC It is based on user discretion. AA represents 5% rate.
Name AA_IN_GST_SAC It is based on user discretion
Country India This way fiscal classification is restricted to India.
Start Date 01/07/2017 The date from which GST is Applicable.
Create child nodes under level 1 node AA_IN_GST_SAC.
Code AA996511 Service Code
Name Road transport Service Description
services of Goods
Country India This way fiscal classification is restricted to India.
Start Date 01/07/2017 The date from which GST is Applicable.
Create child nodes under level 1 node AA_IN_GST_SAC.
Code AA996601 Service Code
Name Rental services of Service Description
road vehicles
Country India This way fiscal classification is restricted to India.
Start Date 01/07/2017 The date from which GST is Applicable.

In this manner all the services taxable at 5% rate are created as child nodes under level 1 node
AA_IN_GST_SAC. AA represents 5%. Did not added explicit percentage to the naming or coding
convention used for product category fiscal classification. Reason behind this is if rate changes, do not
have to change classification name or code.

In the current scenario you need to create another level 1 node for 18% taxable services.

Attribute Value Comments

Code CC_IN_GST_SAC It is based on user discretion. CC represents 18% rate.
 Attribute Value Comments
Name CC_IN_GST_SAC
Country India This way fiscal classification is restricted to India.
Start Date 01/07/2017 The date from which GST is Applicable.
Create child nodes under level 1 node CC_IN_GST_SAC.
Code CC997133 Service Code
Name Accident and Service Description
health insurance
services
Country India This way fiscal classification is restricted to India.
Start Date 01/07/2017 The date from which GST is Applicable.
Create child nodes under level 1 node CC_IN_GST_SAC.
Code CC998321 Service Code
Name Architectural Service Description
advisory services
Country India This way fiscal classification is restricted to India.
Start Date 01/07/2017 The date from which GST is Applicable.

Create Tax Rates

For each unique GST rate create a tax rate. The Centre and States are simultaneously levying GST
called CGST and SGST. In the given example you need to create four tax rates.

GST Rate CGST SGST

5% CGST 2.5% SGST 2.5%

18% CGST 9% SGST 9%

Configure Tax Rate Rules using Product Category Fiscal Classifications

 A tax determining factor (TDF) can be a geographical location, tax registration status, or a product
fiscal classification etc. TDF is an attribute that contributes to the outcome of a tax determination
process. TDF’s are categorized into logical groupings called tax determining factor class. Each tax
determining factor class contains determining factor names that constitute the contents of the class.
Following table explains about TDF details required to map the given scenario.

Attribute Value Comments

Tax Determining Product This factor class uses product category fiscal
Factor Class noninventory linked classification as a tax determining factor.

Tax Determining Product Category This recognizes product category fiscal

Factor Name classification chosen by the user in the transaction
UI.

Create tax determining factor set with following attributes.

To create Tax Determining Factor Sets –

1. Login as Tax Manager

2. From navigator console, navigate to ‘Setup and Maintenance’
3. Search for the task ‘Tax Determining Factor Sets’.
4. Click add button to create a tax determining factor set with following attributes.

Create two tax condition sets for the given scenario.

To create Tax Condition Sets –

1. Login as Tax Manager
2. From navigator console, navigate to ‘Setup and Maintenance’ then search ‘Tax Condition Sets’.
3. Click add button to create a tax condition sets with following attributes.

Create tax rate rule.

To create Tax Rules –

 1. Login as Tax Manager.
2. From navigator console, navigate to ‘Setup and Maintenance’.
3. Search for the task ‘Tax Rules’.
4. Choose rule type ‘Tax Rate Rules’ and click on add button to create tax rule with following
attributes.

Tax determination process with this setup works as follows. Invoice pertaining to cab rental service is
entered and validated in payables.

Payables Transaction Line

Lin Type Unit Price Quantity Product Category

e
1 Item 1000 1 AA996601
Total in INR 1000.00

Tax Determination Process

GST is levied at 5% on transaction line amount (1000*5% = 50 INR). Tax engine looks for product
category given in the transaction line and derives respective level 1 node value, based on that, tax rate
rule defaults 5% rate. Tax lines get created upon successful completion of tax determination process.

Tax Lines

Tax Line Rate Name Rate Tax Amount Tax Regime Tax Name Tax Status
1 CGST_2.5 2.5 25.00 GST CGST Standard
 2 SGST_2.5 2.5 25.00 GST SGST Standard

b. How to handle HSN coding system

In GST, tax payers need to adopt two, four, or eight digits HSN codes for their commodities, based on
their turnover for the previous year.

Scheme of HSN Code –

Turnover Digits of HSN Code

Up to 1.50 Crores No HSN Code
Over 1.50 Crores to 5.00 Crores 2 Digit HSN Code
Over 5.00 Crores 4 Digit HSN Code
Import- Export 8 Digit HSN Code

For example a wholesaler sells confectionery products with a turnover exceeding 5 Crores, following
HSN codes are applicable.

Sample HSN Codes for Confectionery

Commodity HSN Applicable

Code GST Rate
Rusk and Toast 1905 5
Pasta 1902 18
Wafers 1905 18
Baking Powder 2102 12
Namkeen 2106 12

In ERP Cloud HSN coding system can be achieved by using product fiscal classifications. This is explained
in step by step process with the help of a sample HSN codes. Let’s take two GST rates 18 and 12. Rate 12
is Applicable for HSN codes 2102 (Baking Powder) and 2106 (Namkeen). Rate 18 is Applicable for HSN
codes 1902 (Pasta) and 1905 (Wafers). In this example four HSN codes and two rates are taken. Let’s see
how this can be achieved in ERP Cloud.
Inventory Setup Steps-

i) Create Catalog
A catalog is a collection of categories that is used to classify items. Create one catalog specifically for
HSN coding system with the name ‘GST_HSN’.

To Manage Catalogs –
1. Login as Product Manager
2. From Navigator console, navigate to Product Management > Product Information Management
> Item management menu > Manage Catalogs.
3. Click on add button to create a new catalog.

ii) Create Categories under Catalog

Every 4 digit HSN code shall be defined as a category under the catalog. Category code shall be 6
digits that comprises of 4 digit HSN code prefixed with two digit code representing tax slab and
category name shall be commodity name. In the given example you need to define four categories.
 Category Category Name
Code

AA1902 Pasta
AA1905 Wafers
BB2102 Baking Powder
BB2106 Namkeen

Prefix of two digits AA/BB added to category code – In future if taxation authority changes tax rate on
any specific commodity then it is easy to maintain. For example GST rate on wafers changed from 18%
to 12% then user can end date category code AA1905 which represent 18%. At the same time create
new category code BB1905 that represent 12% GST rate.

To Create Categories –
1. Login as Product Manager
2. From Navigator console, navigate to Product Management > Product Information Management >
Item management menu > Manage Catalogs.
3. Query for the Catalog and click on Catalog name.
4. In Edit Catalog UI click on add button to create a new category.

iii) Assign Categories to Item

Identify items falling under a particular HSN code and assign them to respective category. For
example in baking powders you have two items butterfly and nestle. Both these items taxable at
same rate 12%. So these two items in item master shall be assigned to category BB2102 i.e. baking
powder.

To assign Items to Category –

1. Login as Product Manager
2. From Navigator console, navigate to Product Management > Product Information Management
> Item management menu > Manage Item.
3. Query for the desired Item and click on Item name.
4. In Edit Item UI under Categories section click add button to assign item to category.

For more information see Assigning Items to Categories for defining catalogs, categories, Items and
assigning categories to item. The following pictorial representation helps to understand how item
catalog is finally assigned to item.
Tax Setup Steps

iv) Create Product Fiscal Classification Type

To create Product Fiscal Classification Type –
1. Login as Tax Manager
2. From Navigator console, navigate to ‘Setup and Maintenance’ then search ‘Manage Product-
Based Fiscal Classifications’.
3. Click add button to create a new product fiscal classification type with following attributes.

Attribute Value Comments

Inventory GST_HSN Assign catalog created in step 1. This is where you link inventory
Category Set categories and tax product fiscal classification.

Number of 2 Item category code created in step 2 has 6 digits. First two digits
Levels are tracked as level 1 that represents tax rate. Remaining four
digits represent HSN code is tracked as level 2.

Level 1 Details

Type Code GST_RATE It is based on user discretion. First two digits of the category code
 Attribute Value Comments

represent GST tax rate

Type Name GST_RATE It is based on user discretion.

Start position 1 This makes sure tax engine every time reads category code from
first digit as level 1 value.

Number of 2 This make sure that level 1 value ends with second digit.
characters

Level 2 Details

Type Code HSN_CODE It is based on user discretion.

Type Name HSN_CODE It is based on user discretion.

Start position 3 This makes sure tax engine every time reads category code from
third digit as level 2 value.

Number of 4 This make sure that level 2 value ends with fourth digit.
characters

Tax Regime GST Need to attach tax regime to use in tax rules.
Code

v) Create Tax Rates

For each unique GST rate create a tax rate. The Centre and States are simultaneously levying GST
called CGST and SGST. In the given example you need to create four tax rates.

GST Rate CGST SGST

12% CGST 6% SGST 6%

18% CGST 9% SGST 9%

vi) Create Tax Rate Rules

A tax determining factor (TDF) can be a geographical location, tax registration status, or a product
fiscal classification etc. TDF is an attribute that contributes to the outcome of a tax determination
process. TDF’s are categorized into logical groupings called tax determining factor class. Each tax
determining factor class contains determining factor names that constitute the contents of the class.
For the given scenario inventory categories shall be used as product fiscal classifications. Following
table explains about TDF details required to map the given scenario.

Attribute Value Comments

Tax Determining Product inventory This factor class allows using product fiscal
Factor Class linked classification, as a tax determining factor to create tax
rules.

Tax Determining Product Fiscal This factor name uses the ERP Cloud inventory catalog-
Factor Name Classification Type category -item functionality and derives inventory
category from item given in the transaction line.

Create tax determining factor set.

To create Tax Determining Factor Sets –

1. Login as Tax Manager
2. From Navigator console, navigate to ‘Setup and Maintenance’
3. Then search for the task ‘Tax Determining Factor Sets’.
4. Click add button to create a tax determining factor set with following attributes.

Create two tax condition sets.

To create Tax Condition Sets –

1. Login as Tax Manager
2. From Navigator console, navigate to ‘Setup and Maintenance’ then search ‘Tax Condition Sets’.
3. Click add button to create a tax condition sets with following attributes.

Create tax rate rule.

 To create Tax Rules –
1. Login as Tax Manager
2. From Navigator console, navigate to ‘Setup and Maintenance’
3. Search for the task ‘Tax Rules’. Choose rule type ‘Tax Rate Rules’
4. Click add button to create a tax rule with following attributes.

Tax determination process with this setup works as follows. Invoice pertaining to purchase of Pasta is
entered and validated in payables.

Payables Transaction Line

Line Item Unit Price Quantity Line Amount

1 Pasta 250g 1000 1 1000
Total in INR 1000 INR

Tax Determination Process

GST is levied at 18% on transaction line amount (1000*18% = 180 INR). Tax engine looks for item given
in the transaction line and derives item category, based on first two digits of the item category, tax rule
rate defaults 18% rate. Tax lines get created upon successful completion of tax determination process.

Tax Lines

Tax Line Rate Name Rate Tax Amount Tax Regime Tax Name Tax Status
1 CGST_9 9 90.00 GST CGST Standard
2 SGST_9 9 90.00 GST SGST Standard