Labour Charges HSN Codes and GST Rates in India

Labour Charges HSN (Harmonised System of Nomenclature) codes are a part of India’s GST system, functioning as unique codes assigned to all labour services. They help identify and document different types of labour charges, all of which are subject to GST depending on the nature of the service offered. This blog delves into HSN codes for Labour Charges and their associated GST rates, their importance in tax compliance, and how to claim Input Tax Credit (ITC). Let’s keep reading! 

SAC or HSN for Labour Charges in India

Whilst businesses often look for Labour Charges HSN codes, technically, the HSN (Harmonised System of Nomenclature) is used only for classifying goods. For services, the Indian GST applies a parallel system called the Service Accounting Code (SAC).  

Think of SAC as being to services what HSN is to goods: both are systems of classification to define the item to be taxed correctly. Confusions between the two stems from their similar usage, and SAC codes are found on the GST website under the downloadable HSN Directory. But the application remains distinct; when businesses invoice for labour or services of any kind, they must apply SAC codes. 

Also Read: A Detailed Guide to Personal Loan Foreclosure Charges 

Labour HSN Code and GST Rate

The list of HSN codes ends at Chapter 98, post which SAC codes commence with Chapter 99 on All Services. Since labour charges fall under this chapter, all their codes begin with ‘99’. The remaining four digits further describe the industry and nature of the service. Most of these services attract a standard GST rate of 18%. 

The table below has SACs for some common labour charges that fall under 9985 - Support Services: 

Practical Application

Think of an AC repair service or a car workshop. Usually, an invoice is generated for the repair work, mentioning charges for spare parts (goods) as well as labour (service). From a GST perspective, the two components must be listed separately on the invoice. The spare parts will have a separate HSN code with an applicable GST rate, whereas the service element of labour charges would have the SAC code applicable to maintenance and repair services (which mostly falls under the series “9987”). 

Also Read: What is the GST Composition Scheme? 

Why Using the Correct Code for Labour Charges is Crucial

Here are some reasons why you should use correct code for labour charges: 

• Essential for Tax Compliance 
  GST law requires the accurate use of codes on all tax invoices. Invoices that contain incorrect codes or incorrect tax rates are at risk of receiving a notice from tax authorities, or of being penalised. 
• Adds Professional Bearing to Invoicing Methods
  An invoice that lays out the service performed, along with the correct code and a tax breakdown, gives more transparency to customers. In return, it could enhance the speed of processing payments that will further help cash flows in business. 
• Easier Claiming of an Input Tax Credit (ITC) 
  ITC helps lower an individual’s GST liability by letting them claim back the GST they’ve paid on goods and services used for their business. To claim this benefit properly, their invoices must meet compliance, which includes having the right service code on them. 

Also Read: Everything You Need to Know About GST on Loans 

To Conclude

Understanding the correct codes for labour charges is a must for any business owner in India. You not only become a tax-compliant business owner but also build confidence among your clients with a transparent billing system. Along with that, you also can get financial benefits like ITC (Input Tax Credit). This helps manage daily expenses, from employee payroll to timely GST payments. 

If you need financial support for working capital and operations, a Business Loan from Poonawalla Fincorp could be the reliable financial boost your business needs to grow. Apply now! 

Frequently Asked Questions

What is the HSN code for labour charges?
Labour charges are typically classified under the Service Accounting Code (SAC) system, not HSN. You’ll find labour supply services classified under SAC’s Chapter 99. 

Is GST applicable on labour charges?
Yes, GST applies to labour charges. The GST rate for most contractual labour and manpower supply services is 18%. Businesses need to properly classify these services with the correct SAC codes to ensure compliance. 

What is the difference between HSN and SAC codes?
HSN (Harmonised System of Nomenclature) codes are used for classifying goods, while SAC (Service Accounting Codes) are specifically for classifying services under GST. The key difference is that HSN is for goods and SAC is for services. 

Can a business claim Input Tax Credit on labour charges?
Yes, registered businesses can claim Input Tax Credit (ITC) on the GST paid for labour services, as long as the services are used to provide taxable goods or services. This helps lower the business’ total GST liability. 

Is GST refundable on labour charges?
No, GST on labour charges is not refundable unless it was incorrectly charged. Businesses may claim a refund on any excess GST paid on input supplies, as long as they meet the refund criteria outlined by GST laws. 

Will GST increase my business costs for labour services?
GST on labour services will add to the cost, generally at a rate of 18%. However, businesses can offset this cost by claiming ITC on the GST paid for labour services used in their operations. 

Is GST chargeable on outsourcing labour services?
Yes, GST can be charged on outsourced labour services. The service provider shall charge GST as per the applicable rate, i.e., generally 18%, and the business receiving the services shall claim the Input Tax Credit (ITC) provided that the services are used for taxable output.