HSN and SAC Code Guide for MSMEs: How to Find the Right Code and When You Need an E-Way Bill (2026)

Two compliance items cause more preventable GST errors for Indian MSMEs than any others: using the wrong HSN code on an invoice, and not knowing when an e-way bill is mandatory for a goods movement. Both are avoidable with the right reference. A wrong HSN code moves a product from one GST rate slab to another, sometimes from 5% to 18%, creating an incorrect tax charge on the invoice, a mismatch in the buyer’s ITC claim, and a GSTR-1 Table 12 validation warning. A missing e-way bill for a qualifying consignment risks goods seizure and a penalty of up to 200% of the applicable tax value.

This guide explains what HSN and SAC codes are, how many digits your business must report based on your turnover, how to use an HSN code finder to identify the right code for any product or service, and the complete e-way bill applicability rules for 2026 including state-wise variations and the 180-day document age restriction.

What Are HSN and SAC Codes? The Difference Every MSME Must Know

HSN stands for Harmonized System of Nomenclature, an international product classification system developed by the World Customs Organization (WCO) in 1988 and adopted by over 200 countries including India. Under GST, every goods transaction must reference an HSN code to identify the product category and its applicable tax rate. SAC stands for Service Accounting Code, India’s equivalent for services under GST, always beginning with the digits ’99’.

The critical point for MSME owners: you do not choose your HSN or SAC code. The code is determined by what your goods or service actually is, based on the official HSN master maintained by CBIC. If you use a code that does not match your goods, your invoice has the wrong GST rate, and your buyer’s ITC claim is at risk.

	HSN Code	SAC Code
What it covers.	All goods: raw materials, manufactured goods, imported items, traded products.	All services: IT services, consulting, transportation, job work, professional services.
First two digits.	Chapter (01-97 for goods, 98 for project imports).	Always ’99’: chapter 99 covers all services.
Structure.	2 digits (chapter) + 2 digits (heading) + 2 digits (sub-heading) + 2 digits (India-specific) = 8 digits maximum.	99 + 2 digits (major group) + 2 digits (service group) + 2 digits (specific service) = 6 digits.
GST rate determined by.	The HSN code of the goods.	The SAC code of the service.
Who uses it.	Manufacturers, traders, importers, exporters: any MSME dealing in goods.	Service providers including IT, transport, job workers, consultants, agencies.
Mixed invoices (goods plus services).	Report HSN for goods line items and SAC for service line items separately on the same invoice.	Same: each line item carries its own code.
Mandatory from.	April 2021 (Notification 78/2020).	Same notification and timeline.

Source: HSN and SAC code structure and applicability under GST. Tax Garden: HSN and SAC Code in GST Full Guide India 2026.

How Many HSN Code Digits Does Your MSME Need? (Updated for 2025-26)

The number of HSN code digits you must report on invoices and in GSTR-1 depends on your Annual Aggregate Turnover (AATO). This is one of the most commonly confused compliance rules for MSMEs. The critical rule confirmed by CBIC on 10 June 2025: HSN code is mandatory in GSTR-1 for ALL B2B supplies regardless of turnover. The turnover threshold only governs how many digits are required, not whether HSN must be reported.

AATO (Annual Aggregate Turnover)	B2B Invoices (to Registered Buyers)	B2C Invoices (to Consumers)	Exports and Imports
Below Rs 5 crore.	4-digit HSN mandatory. No turnover threshold exempts a taxpayer from B2B HSN reporting.	HSN optional (not mandatory for B2C). B2C tab in GSTR-1 Table 12 can be left blank.	8-digit mandatory.
Above Rs 5 crore.	6-digit HSN mandatory.	6-digit HSN mandatory (all invoices, both B2B and B2C).	8-digit mandatory.
Any turnover: notified goods.	8-digit mandatory where CBIC has specifically notified (e.g. certain chemicals, pharmaceuticals).	Same: 8-digit where notified.	8-digit always.

Important: AATO is calculated across all GSTINs under your PAN across India. A business with three state registrations each at Rs 2 crore has an AATO of Rs 6 crore: 6-digit HSN codes are mandatory on all invoices, not 4-digit. The multi-GSTIN total governs, not the individual registration turnover.

Phase III GSTR-1 Table 12 Changes (from April/May 2025)

From April/May 2025, GSTN implemented Phase III changes to Table 12 of GSTR-1 and GSTR-1A. HSN code entry in GSTR-1 Table 12 is now dropdown-based, not free-text entry. You cannot manually type an HSN code. It must be selected from the validated list in the portal. Any HSN code not in the GSTN master will not appear as a dropdown option. Table 12 now requires separate B2B and B2C HSN summaries. Table 13 (document-wise details) is also mandatory from the same period. Validations are currently in warning mode, meaning mismatches trigger alerts but do not block GSTR-1 filing.

Source: Phase III Table 12 GSTR-1 changes from April/May 2025. CAindelhi: HSN Code Requirements Based on Annual Turnover. CBIC X clarification 10 June 2025.

HSN Code Finder: Quick Reference for Common MSME Products and Services

The official approach to finding your HSN code is to search the CBIC HSN master at cbic-gst.gov.in or the e-invoice portal’s HSN code search tool. The reference tables below serve as a fast-access finder for the most common product and service categories used by Indian MSMEs.

How to use these tables: Find your product category in Column 1. The Chapter (2 digits) and Heading (4 digits) in Column 2 are the starting point. Go to cbic-gst.gov.in and search using the 4-digit heading to find the correct 6 or 8-digit code for your specific product variant. Do not use a 4-digit code from this table if 6 digits are required for your turnover.

Manufacturing Sector: Common HSN Chapters and Headings

Product Category	Chapter	Heading (4-Digit)	Common GST Rate	Notes
Cotton yarn and thread.	52	5205-5207	5%.	Rate varies by ply and processing.
Woven cotton fabrics.	52	5208-5212	5%.	Rate varies by construction type.
Synthetic fibres and yarn.	54-55	5401-5512	12%.	Varies by fibre type.
Readymade garments (under Rs 1,000 MRP).	61-62	6101-6217	5%.	Knitted and woven in separate chapters.
Readymade garments (above Rs 1,000 MRP).	61-62	6101-6217	12%.	MRP-based rate distinction.
Footwear (retail price up to Rs 1,000).	64	6401-6406	5%.	Verify by unit price.
Footwear (retail price above Rs 1,000).	64	6401-6406	18%.	Rate depends on sale price, not cost.
Steel rods and bars.	72	7213-7216	18%.	Structural steel and re-bars.
Aluminium products.	76	7601-7616	18%.	Varies by product type.
Plastic packaging material.	39	3920-3926	18%.	Most plastic articles.
Paper and paperboard.	48	4801-4823	12% or 18%.	Verify by end use.
Pharmaceutical tablets and capsules.	30	3004	12%.	Branded vs generic distinction matters.
Agro products (paddy, rice).	10	1006	0% or 5%.	Paddy 0%, branded rice 5%.
Edible oils.	15	1507-1516	5%.	Most edible oils.
Processed food (biscuits, snacks).	19-20	1905, 2008	18%.	Verify by product type.
Electronic goods (general).	85	8501-8543	18%.	Most consumer electronics.
Mobile phones.	85	8517	12%.	Reduced rate for phones.
Machinery and parts.	84	8401-8487	18%.	Industrial machinery.
Paints and coatings.	32	3208-3215	18%.	Most paint products.
Chemicals (industrial).	28-29	2801-2942	18%.	Wide chapter range: verify specifically.
Furniture.	94	9401-9406	18%.	Verify by material type.
Ceramics and tiles.	69	6907-6914	18%.	Most construction ceramics.
Gems and jewellery (gold).	71	7113	3%.	Gold articles including studded.
Diamonds (cut and polished).	71	7102	0.25%.	Special rate for cut diamonds.

Services Sector: Common SAC Codes

Service Category	SAC Code	GST Rate	Notes
IT services (software development, support).	998314	18%.	Most IT and software services.
Consulting and advisory services.	998312	18%.	Management, business, financial consulting.
Accounting and bookkeeping.	998222	18%.	Accounting, auditing, tax filing services.
Freight transport by road.	9965	5% (with ITC) or 12% (without ITC).	GTA services: rate depends on recipient.
Courier services.	996812	18%.	Door-to-door delivery services.
Job work: textiles and apparel.	9988	5%.	Processing on principal’s goods.
Job work: engineering and general manufacturing.	9988	18%.	Post September 2025 GST 2.0 rationalisation.
Job work: pharma.	9988	12%.	Pharmaceutical manufacturing job work.
Renting of commercial premises.	997212	18%.	Office, warehouse, commercial space.
Construction services (commercial).	9954	18%.	Commercial property construction.
Construction services (residential).	9954	12%.	Affordable housing varies further.
Legal services to business entities.	9982	18%.	B2B legal services.
Advertising services.	9983	18%.	Print, digital, outdoor advertising.
Security and detective services.	9985	18%.	Guard, patrol, detective services.
Manpower supply and staffing.	9985	18%.	Labour supply services.
Catering and food services.	9963	5% or 18%.	Outdoor catering 18%. Restaurants vary.
Health and medical services.	9993	Exempt or 5%.	Most medical services exempt. Verify.
Educational services.	9992	Exempt for approved institutions.	Verify specific institution type.

GST rates are subject to change by CBIC notification. The rates above reflect the position as of June 2026 including GST 2.0 rationalisation changes from September 2025. Always verify current rates at cbic-gst.gov.in or through your CA before billing.

Source: HSN 8-digit code structure and India-specific subdivisions. Pyrelo: HSN Code Explained: India’s 8-Digit ITC-HS System.

How to Find the Right HSN Code for Any Product: A Step-by-Step Process

The tables above cover common categories. For any product not listed, or to find the specific 6 or 8-digit sub-heading, follow this process. Using an HSN code finder correctly requires understanding the hierarchy before you search.

• Identify the physical nature of the product: Is it a natural material (plant, animal, mineral), processed material, or manufactured item? This determines the broad chapter.
• Find the chapter: Chapters 01-05 cover live animals and animal products. Chapters 06-14 cover vegetable products. Chapters 15-24 cover food, beverages, and tobacco. Chapters 25-27 cover minerals and fuels. Chapters 28-38 cover chemicals. Chapters 39-40 cover plastics and rubber. Chapters 41-67 cover hides, textiles, footwear, and accessories. Chapters 68-83 cover stone, glass, and metals. Chapters 84-85 cover machinery and electronics. Chapters 86-89 cover vehicles and transport. Chapters 90-97 cover optical, precision, art, and miscellaneous goods.
• Search the CBIC HSN master: go to cbic-gst.gov.in, navigate to ‘HSN Code’ search, and enter your product description. The system returns matching codes with their applicable GST rates.
• Cross-check with a supplier invoice: if you are trading goods that your supplier already invoices correctly, their HSN code is your strongest reference for the same goods.
• Verify the GST rate: the rate attached to the code in the CBIC master is the correct rate. If your current invoices use a different rate, this is the source of the mismatch.
• For services: go to cbic-gst.gov.in and navigate to the ‘SAC Code’ section. Search by service description. All SAC codes begin with ’99’.
• When in doubt: refer to a CA or apply for an Advance Ruling from your state’s GST AAR (Authority for Advance Ruling). An advance ruling provides legal certainty on the correct classification and cannot be challenged by the department for that specific supply.

Common mistake: searching for an HSN code on unofficial websites or GST utility tools and using the result without verifying against the official CBIC master. Unofficial tools may carry outdated codes or incorrect rates, particularly after the September 2025 GST 2.0 rationalisation. Always verify at cbic-gst.gov.in.

What Happens When You Use the Wrong HSN Code

Using an incorrect HSN code is not a minor formatting error. It triggers a cascade of compliance problems for both the seller and the buyer. Here is what happens across each dimension.

Consequence	For the Seller	For the Buyer
Wrong GST rate on invoice.	If the wrong code results in a lower rate, the seller has undercharged GST. The difference plus interest at 18% per annum is payable to the department from the original invoice date.	If the buyer claims ITC at the lower rate and the supplier later corrects to a higher rate, the buyer faces ITC reversal with interest.
GSTR-1 Table 12 validation warning or error (from Phase III).	Since April/May 2025, HSN entry in Table 12 is dropdown-only. An invalid or incorrect HSN code cannot be entered. GSTR-1 cannot be filed until the code is corrected.	Buyer’s GSTR-2B is delayed or shows incorrect data until the supplier corrects and re-files GSTR-1.
ITC mismatch for buyer.	Not a direct seller issue, but damages the buyer relationship. Buyers whose ITC is blocked due to your HSN error will raise disputes.	ITC claimed using an invoice with incorrect HSN may be disallowed if the rate was also incorrect. Interest and reversal apply.
GST notice and penalty.	Wrong HSN code constitutes incorrect information in a GST invoice under Rule 46 CGST Rules. Penalty under Section 122: up to Rs 10,000 per invoice or 100% of tax due.	If the buyer knew or should have known the classification was incorrect, they may share liability.
E-way bill generation failure.	The e-way bill portal validates HSN codes against the GSTN master. An invalid HSN code will prevent e-way bill generation, blocking goods dispatch.	Goods cannot be received if no valid e-way bill exists for the movement.

E-Way Bill Rules for Indian MSMEs: When Is It Mandatory in 2026?

An e-way bill is an electronic permit for the movement of goods that must be generated on the e-way bill portal (ewaybillgst.gov.in) before goods are dispatched. It is separate from the invoice. Both documents are required when the e-way bill threshold is triggered. The e-way bill contains Part A (invoice details, goods description, HSN code, value, consignee details) and Part B (transporter details, vehicle number, route information).

The Basic Threshold: When Is an E-Way Bill Mandatory?

Movement Type	E-Way Bill Required When?	Threshold	Notes
Inter-state (crossing a state border).	Any movement where consignment value exceeds Rs 50,000.	Rs 50,000. Uniform across all states.	Applies regardless of distance. Even 50 km inter-state requires e-way bill if value exceeds Rs 50,000.
Intra-state (within the same state).	Threshold varies by state government notification.	Rs 50,000 to Rs 2,00,000 depending on state.	See state-wise table below.
Job work inter-state.	Mandatory regardless of value.	No value threshold. Always required.	Job work goods crossing state borders always need e-way bill under Rule 138(1)(c).
Job work intra-state.	State threshold applies.	State-specific.	Most states apply Rs 50,000 threshold for intra-state job work too.
Exempt goods transport.	Not required for specifically notified exempt goods.	No threshold. Exempt always.	Vegetables, fresh milk, unprocessed food, books. Full list at CBIC notification.

State-Wise Intra-State E-Way Bill Thresholds (Key States)

State	Intra-State Threshold	Notes
Maharashtra	Rs 1,00,000.	Higher threshold for local movement.
Delhi	Rs 1,00,000.	Higher threshold.
Karnataka	Rs 1,00,000.	Higher threshold.
Tamil Nadu	Rs 1,00,000.	Higher threshold.
Gujarat	Rs 50,000.	Standard threshold.
Rajasthan	Rs 1,00,000 (Rs 2,00,000 within same city for specified goods).	Special higher limit for within-city movement.
West Bengal	Rs 1,00,000.	Higher threshold.
Punjab	Rs 1,00,000.	Higher threshold.
Uttar Pradesh	Rs 50,000.	Standard threshold.
Madhya Pradesh	Rs 1,00,000.	Higher threshold.
Bihar	Rs 1,00,000.	Higher threshold.
Telangana	Rs 50,000.	Standard threshold.
Kerala	Rs 50,000 (Rs 10,00,000 for gold and precious stones).	Special rule for gold and precious stones.
Andhra Pradesh	Rs 50,000.	Standard threshold.
Haryana	Rs 50,000.	Standard threshold.

Always verify the current state threshold at ewaybillgst.gov.in before dispatch. State governments can and do update thresholds. The table above reflects the position as of June 2026 but is subject to change by state notification.

Source: State-wise e-way bill thresholds and 2026 updates. Busy.in: E-Way Bill State-Wise Threshold Limits 2026.

E-Way Bill Validity, the 180-Day Rule, and Key 2026 Changes

Validity Period Based on Distance

Cargo Type	Validity per 200 km	Example
Regular cargo (standard vehicles).	1 day per 200 km.	Consignment travelling 600 km: valid for 3 days from generation.
Over-dimensional cargo (ODC).	1 day per 20 km.	ODC consignment travelling 200 km: valid for 10 days from generation.
Multi-modal transport (involving rail).	15 days from generation.	Rail freight consignments have extended validity.

Validity runs from the point of generation, not from the start of the journey. An e-way bill generated at 6 PM for a consignment that does not depart until the next morning has already used some of its validity period. For long-distance consignments, generate the e-way bill as close to departure time as possible.

Key 2026 Rule Changes Affecting E-Way Bills

• 180-day document age restriction (effective January 2025): An e-way bill cannot be generated for any invoice, bill of supply, or delivery challan that is more than 180 days old. If your invoice is dated January 2026 and you try to generate an e-way bill in August 2026, the portal blocks it permanently. This primarily affects businesses with delayed dispatches, consignments held in storage, or retrospective billing.
• 360-day extension cap: e-way bill validity cannot be extended beyond 360 days from the original generation date, even through repeated transhipment extensions.
• Mandatory Multi-Factor Authentication (MFA): all taxpayers and transporters accessing the e-way bill portal must complete MFA (OTP-based) for every login. Ensure all accounts have active mobile numbers registered.
• 6-digit HSN code mandatory in e-way bill for businesses above Rs 5 crore AATO: the e-way bill portal now strictly validates HSN codes. A 4-digit code submitted by a business that should be using 6 digits will be flagged.
• Ship-to GSTIN mandatory from 1 August 2026: where Ship-to information differs from the buyer’s billing address, the Ship-to GSTIN becomes mandatory in both the e-invoice IRN and the e-way bill APIs. This affects businesses with multi-location buyers.
• GSTR-3B filing block for non-filers: from 2025-26, the e-way bill portal blocks e-way bill generation for taxpayers who have not filed GSTR-3B for 2 or more consecutive months. Staying current with GSTR-3B is now a prerequisite for generating e-way bills.

Source: E-way bill 2026 rule changes including 180-day restriction and MFA. ClearTax: E-Way Bill under GST Rules, Applicability, Limit and Generation Process.

Goods Exempt from E-Way Bill: What MSMEs Do Not Need to Generate

Even when the Rs 50,000 threshold is crossed, certain goods are specifically exempt from the e-way bill requirement under CBIC Notification 12/2018-Central Tax. MSME owners and transporters must know these exemptions to avoid unnecessary compliance burden, and to avoid claiming exemption for goods that are not actually on the list.

Exempt Goods Category	What Is Covered	Note
Fresh and frozen vegetables and fruits.	Potatoes, onions, tomatoes, fruits in natural state.	Processed or packaged products are NOT exempt.
Unprocessed tea, coffee, jaggery.	Raw agricultural commodities.	Packaged and branded versions carry different HSN and may need e-way bill.
Alcoholic liquor for human consumption.	Excluded from GST entirely, hence from e-way bill mandate.	Separate state excise compliance applies.
Petroleum crude, high-speed diesel, petrol, ATF, natural gas.	Excluded from GST scope currently.	No e-way bill under GST. Separate tracking applies.
Currency notes and coins.	Movement of currency.	Bank transfers excluded.
LPG cylinders for household use.	Under certain conditions.	Commercial LPG may still require e-way bill.
Books, maps, and periodicals.	Printed educational material.	Exempt under Notification 12/2018.
Railway locomotives and railway parts.	Movement by railways as own goods.	Not for third-party goods transported by rail.
Goods transported by non-motorised vehicle.	Hand carts, cycle rickshaws, boats.	Modern vehicles not covered by this exemption.
Goods of value up to state threshold.	Below applicable intra-state threshold.	Document (invoice or challan) still required. Only e-way bill is not needed.

The exemption list is specific to the goods type. If you are unsure whether your goods qualify for exemption, generate the e-way bill. The penalty for moving goods without a required e-way bill is 200% of the applicable tax value, or 100% of the invoice value for exempt goods, far higher than the effort of generating the document.

How Elixir Books Manages HSN Codes and E-Way Bills for MSME Manufacturers

The two most common points of failure in HSN code and e-way bill compliance for MSME manufacturers are validation and automation. Manual systems fail at validation: a wrong HSN code can be typed into an invoice without any warning until the GSTR-1 Table 12 dropdown rejects it. Manual systems fail at automation: an e-way bill is a separate step from the invoice, and it gets missed when the business is busy or the accountant is not available at dispatch time.

Here is how Elixir Books addresses both failure points within the billing and dispatch workflow.

• HSN code validation at point of invoice creation: Elixir Books validates every HSN code entered against the current GSTN master. Invalid codes, codes not matching the product type, and 4-digit codes from businesses above Rs 5 crore AATO are flagged before the invoice is saved.
• GST rate auto-calculation from HSN: once an HSN code is entered and validated, the correct GST rate is applied automatically. Rate errors from manually entering the wrong percentage are eliminated at source.
• HSN-wise GSTR-1 Table 12 auto-population: invoice data aggregated by HSN code for Table 12 without manual compilation. Separate B2B and B2C HSN summaries generated automatically per Phase III requirements.
• E-way bill auto-generation from invoice data: for qualifying consignments above Rs 50,000, the e-way bill is generated from the same invoice data without a separate portal entry. No re-entry of goods details, GSTIN, or HSN on the e-way bill portal.
• 180-day document age alert: invoices approaching the 180-day limit for e-way bill generation are flagged in the platform, preventing situations where dispatch is delayed past the window.
• Inter-state vs intra-state threshold check: the platform applies the correct threshold based on the state of origin and destination, flagging consignments that require e-way bill regardless of whether the user would have noticed.

For a full breakdown of platform features including HSN validation and e-way bill integration, see the Elixir Books features page. For pricing and add-on module details, see the plans and pricing page.

For GST compliance context including GSTR-1 Table 12 and HSN reporting in context of the full filing workflow, read: Avoiding Losses: Master GST Reconciliation with Elixir Books. For the broader view of how integrated accounting handles GST compliance end to end, read: Cloud vs Traditional Accounting Software in India: Which Is Right for Your MSME in 2026?.

Frequently Asked Questions