In <a href="https://www.skydo.com/blog/an-indian-tech-exporter's-journey-with-skydo?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">IT service export</a>, success and growth hinge on more than just groundbreaking solutions and global outreach. Business compliance is a crucial aspect that can either propel a company forward or bog it down. While often considered a labyrinth of complexities, mastering compliance is key to unlocking seamless operations and untapped opportunities.

For IT service export companies seeking to flourish globally, understanding and correctly applying the Harmonized System of Nomenclature (HSN) code or the Service Accounting Code (SAC) is an indispensable pursuit.&nbsp;

These codes, though seemingly technical, wield substantial impact, determining the tax rates, exemptions, and adherence to regulatory frameworks for <a href="https://www.skydo.com/blog/future-of-cross-border-payments-2030-and-beyond?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">cross-border transactions</a>.

HSN Code and SAC: Definitions, Purpose, Structure, and Differences

All goods and services subject to GST in India are classified using an HSN code and SAC to enable accurate business classification.&nbsp;&nbsp;&nbsp;

HSN (Harmonised System of Nomenclature) is an international classification system developed by the World Customs Organization (WCO). It classifies commodities into sections, chapters, headings, and subheadings, resulting in a unique 8-digit code for each commodity. Thus, the HSN code ensures that goods of similar nature are correctly classified across the globe.

SAC's full form is the Service Accounting Code (SAC), which is an official nomenclature system introduced by the Central Board of Indirect Taxes and Customs (CBIC) to identify services and determine the associated GST rates for computing tax liability. In India, SAC codes are used to classify, measure, and learn the applicability of GST on various services.

Based on the HSN (goods) or SAC (services) code in India, there are fixed GST rates in five slabs, namely 0%, 5%, 12%, 18% and 28%. Each invoice under the GST system must include the HSN code for the products sold and the SAC code for the services provided. HSN code and SAC will be determined based on the previous year's business turnovers.



The table below summarises the key differences between both codes and the ones that may apply to your business.

Use SAC instead of HSN Code when dealing with mixed supply, composite supply, contracts for work, professional services, or the rental/lease of goods with associated services. But how can you determine the applicable code for your business?

How to Find the Right HSN Code or SAC for Your Business

As an IT service provider seeking to navigate the complexities of business compliance, correctly identifying the appropriate SAC or HSN code for services is a crucial step. These codes are pivotal in accurately classifying your services, understanding tax implications, and ensuring seamless cross-border transactions.&nbsp;

Consider the following factors to determine your business's applicable HSN or SAC code.

1. Assess the nature of your goods or services

Dive deep into the core elements and features of your services. For example, identify your primary services - software development, IT consulting, software maintenance, cloud computing, and data processing.&nbsp;

If your business offers software development, you should specify whether you provide web development, mobile app development, or enterprise software development.

2. Analyse relevant industry-specific guidelines

Every service may have different categorisation criteria depending on their features and applications. What are the industry-specific guidelines related to your services?&nbsp; Consult relevant trade groups, industry forums, or government publications connected to your services to get insights on suitable categorisation.&nbsp;

3. Seek professional advice or consulting experts

While knowing industry-specific norms is important, getting professional adds a degree of assurance. Consult tax advisors, chartered accountants, or other specialists savvy with GST legislation and HSN/SAC codes. They can customise their advice to your company's unique operations to help you minimise tax liability.

4. Review government resources and publications

Refer to the <a href="https://cbic-gst.gov.in/gst-goods-services-rates.html">Central Board of Indirect Taxes and Customs (CBIC) and the GST Council</a> to find the correct HSN code or SAC for your services with descriptions for numerous goods and services. Stay updated by reviewing these resources periodically, cross-referencing them with your business activities, and making informed decisions about code selection.

5. Follow updates and changes to HSN and SAC codes

Ensure accurate tax calculations, and avoid disputes with tax authorities and potential penalties by regularly checking the <a href="https://cbic-gst.gov.in/index.html#">CBIC website</a> (the “What’s New” section) for official notifications, and other GST-related publications.

While&nbsp; HSN codes are essential for seamless cross-border transactions, they come with challenges that can pose significant risks if not addressed diligently.&nbsp;

Ambiguities and changes in HSN Codes and SACs

Considering rapidly developing technology, new services are constantly surfacing, making it difficult to search HSN code or discover exact matches within the current coding system. When choosing codes, this ambiguity may lead to doubt and possible misclassifications.&nbsp;

Furthermore, the government updates HSN codes and SACs regularly to reflect changes in the industry and technical developments and comply with international standards. Staying updated with these changes is crucial to ensure accurate classification.

Incorrect categorisation of goods or services under HSN or SAC could lead to serious consequences, such as penalties. When tax officials conduct audits and find misclassifications, businesses may be subject to paying the correct taxes, penalties, and interest. This can majorly impact your company’s financial health and reputation.

Adhering to best practices for HSN codes and SACs is paramount. These practices promote seamless operations and safeguard businesses from potential pitfalls.

1. Maintaining accurate records of HSN Codes and SAC

Maintain accurate records to ensure <a href="https://www.skydo.com/blog/chartered-accountants-approve-skydo-for-seamless-gst-refunds?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">GST compliance</a> with a database of HSN codes and SACs for your goods and services. Organise these records for easy retrieval and reference whenever required.&nbsp;

2. Regular review and updates of HSN Code or SAC applicability

Conduct periodic HSN/SAC code audits to keep up with the changing needs of your organisation. Keep a vigilant eye on the latest government updates regarding codes and make necessary modifications as required to stay compliant.

3. Engaging professional help for HSN Code or SAC determination

Consult experts such as tax advisors or chartered accountants to figure out the proper HSN codes and SACs for your services. Professional advice can help you avoid misclassifications and ensure compliance.

4. Ensuring compliance with applicable regulations and laws

Compliance is the foundation of a thriving business. Stay well-versed in all applicable GST laws, regulations, and guidelines, especially the ones related to HSN codes and SACs. Ensure your company adheres to these rules by filing GST returns on time, issuing appropriate HSN/SAC invoices, and paying taxes on time.

Avoid penalties and streamline your operations by accurately classifying your products or services. With the correct HSN or SAC Code, you can simplify tax calculations, optimise inventory management, and meet government regulations effortlessly. Conduct diligent research, stay informed about updates, and seek expert advice to navigate the complexities of HSN and SACs confidently.

Ans: In GST, UQC stands for "Unit Quantity Code." It is a code used to specify the unit of measurement for goods or services, helping in accurate classification and tax calculations.

Q2. Is the HSN Code mandatory for all service exporters?

Ans: No, HSN Codes are primarily used for classifying goods, and service exporters typically use SAC (Service Accounting Code) to categorise and determine GST rates for their services.

Q3. Why are HSN Codes important at the time of filing GST returns?

Ans: HSN Codes are essential for accurate tax calculations and enable businesses to determine GST rate exemptions and adhere to regulatory frameworks when reporting their sales of goods.

Q4. Where should the HSN/SAC code be mentioned?

Ans: The HSN code for goods and SAC code for services should be mentioned on invoices to ensure proper classification for tax purposes.

Q5. How many codes are businesses required to mention on the invoice?

Ans: For goods, businesses need to mention the HSN code, and for services, the SAC code. These codes help in tax compliance and accurate reporting.

Q6. What is the difference between an HSN code and a SAC code?

Ans: The HSN code (Harmonized System of Nomenclature) classifies goods, while the SAC code (Service Accounting Code) classifies services. They have different structures and serve distinct purposes in GST compliance.

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For exporters, eBRC (Electronic Bank Realization Certificate) is a key compliance document that serves as proof of payment received from abroad for exported goods or services. It is especially important for goods and software exporters covered under SOFTEX.

In this blog, we’ll break down what eBRC is, why it matters, how to obtain it, and everything else you need to know.

An eBRC (Electronic Bank Realization Certificate) is digital proof that your bank issues once you receive payment for an export. Simply put, it confirms that you’ve been paid for your goods or services.

This certificate is important because it helps you report your earnings, file taxes easily, and even access government benefits meant for exporters including low-cost loans, subsidies, duty exemptions and more.&nbsp;Since eBRC includes all the transaction details, it also makes compliance with authorities like the Income Tax Department smooth and hassle-free.

Before eBRC, getting a <a href="https://www.skydo.com/blog/bank-realisation-certificate-all-you-need-to-know">Bank Realization Certificate (BRC)</a> was a tedious process. Exporters had to visit their bank, apply for a physical BRC, and then submit it to the Directorate General of Foreign Trade (DGFT). The DGFT would manually enter transaction details, making the process slow and complicated—especially for claiming export incentives.

In 2012, the DGFT introduced e`BRC, eliminating the need for physical visits and paperwork. Now, banks issue BRCs digitally, making it faster, easier, and more efficient for exporters to claim benefits and comply with regulations.

In India, banks issue an -BRC to exporters through the following process.

How do you check the eBRC status on the DGFT Website?

Here are the steps to check the status of your eBRC (Electronic Bank Realization Certificate) online.

DGFT has made it mandatory for all exporters to apply for and receive the eBRC to demonstrate that they have received payment for their exported goods or services per DGFT regulations.

The eBRC system provides a digital record of export transactions, making it easier for exporters to maintain and retrieve records for audit and compliance.  Additionally, exporters can avoid visiting the bank and DGFT offices.&nbsp;

One of the main reasons exporters apply for the eBRC is to reap the benefits of various export benefits offered by the Indian government under its Foreign Trade Policy. Submitting an eBRC allows the exporters to be eligible for benefits such as low-cost loans, duty exemptions, subsidies, etc.&nbsp;

Enhancing transparency and accountability

The Indian government and authorities such as the Income Tax Department and the DGFT constantly monitor and manage the country's foreign exchange reserves and tax filing. Issuing e-BRC ensures that the foreign exchange earned through exports is accurately reported and accounted for with effective tax filing.&nbsp;

How to Claim Export Incentives using eBRC

In India, the DGFT decides on the value of the incentives which an exporter can seek under the various export benefits. The value is decided by analysing the Free on Board (FOB) of the exported goods and services mentioned in the shipping bills, and the total received payments per the eBRC.&nbsp;

Here's how you can claim these benefits with eBRC:

However, you must ensure that the bank has submitted an error-free e-BRC and it reflects the consolidated realisation value. Furthermore, you must enter freight values, insurance and commission values in the refund application, as the e-BRC excludes such values.&nbsp;

Here are some key resources and tools that can help you in your endeavour to obtain your e-BRC.

eBRC is a crucial certificate issued by the bank and verified by the DGFT for streamlining the payment procedure for exporters and working as an income proof for better transparency and tax filing.&nbsp;

It is mandatory for an exporter receiving payments for the export of goods and services to apply for eBRC and ensure that the bank uploads it on the DGFT website. Utilising the eBRC, exports can present their eligibility for various export incentives and increase their profit margin.&nbsp;

However, as an exporter, you must maintain accurate records of your export transactions and related documents to facilitate the e-BRC application process. Since the regulations and the procedure may change over time, it's important to stay updated with the latest information from official government sources and industry associations.&nbsp;

You can contact <a href="mailto:support@skydo.com">industry experts at Skydo</a> to help you with the eBRC process and in case you have any other queries related to foreign exchange.&nbsp;

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In 2010, the Reserve Bank of India (RBI) recognized the surge in e-commerce transactions and decided to establish a framework. They introduced regulations titled "Processing and Settlement of Export Related Receipts Facilitated by Online Payment Gateways."

In essence, these rules allowed specific banks to collaborate with online payment gateway service providers (OPGSPs) to streamline the export-related earnings.

By 2015, the RBI expanded these regulations to include import-related payments as well. They authorized AD Category-I banks to offer similar facilities for imports through agreements with OPGSPs.

This strategic move extended the RBI’s regulatory scope, simplifying international trade transactions for businesses.

Per the OPGSP guidelines, AD Category-I banks serve as intermediaries between the OPGSPs and the RBI, exercising quasi-regulatory control over the operations. However, despite these efforts, challenges persist, hindering smooth <a href="https://www.skydo.com/blog/future-of-cross-border-payments-2030-and-beyond?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">cross-border transactions</a>, particularly in emerging business scenarios.

One significant hurdle is the management of risks associated with returns and chargebacks. Many banks remain hesitant to fully embrace the OPGSP framework due to these unresolved challenges.

Consequently, most Indian tech export companies were forced to rely on one of the three options -

The latter seems like an attractive option while also providing additional benefits such as an international presence for the business. 

Currently, the OPGSP facility serves as the primary payment method for more than 300,000 Micro, Small, and Medium-Sized Enterprises (MSME) exporters throughout India. Despite recent geopolitical tensions in Europe and a global economic recession, India has emerged as a leader in small-value online service exports, aided by the widespread availability of the internet and smartphones even in remote areas.

Introducing OEIF: Potential Reconfiguration

In early 2023, RBI released draft guidelines on the Online Export-Import Facilitators (OEIF), proposing an evolution beyond the OPGSP framework. OEIFs, defined as payment aggregators enabling low-value export and import remittances, might replace the existing system.&nbsp;

While several parts of this draft are quite progressive and well-received by the payments industry, some aspects are not fully clear, and some aspects seem to take a conservative view.&nbsp;

Two major changes that are quite positive and will make OPGSPs more useful to exporters are as follows.

However, the RBI aimed to further simplify the OPGSP guidelines for small digital payments linked to import/export transactions through e-commerce and protect the interests of Indian stakeholders.&nbsp;

Yet, some rules under the Draft Guidelines put more burden on the OEIF entities than the previous OPGSP regime. Such as,&nbsp;

These steps could increase some indirect compliances that apply to PA firms and present practical difficulties for the OEIF entities concerning implementing the guidelines.&nbsp;

At the end of October 2023, the Reserve Bank of India (RBI) unveiled the <a href="https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12561&amp;Mode=0">Regulations on Payment Aggregators</a>—Cross-Border, aimed at governing payment aggregators facilitating cross-border transactions for goods and services.&nbsp;

These regulations effectively replace the earlier draft Overseas Electronic Inward Remittance (OEIF) Guidelines.

Under these new rules, Payment Aggregators (PAs) holding in-principle PA approval or those who have submitted PA applications and wish to engage in cross-border payments must secure approval from the RBI within 60 days. For new entrants, prior approval from the RBI is mandatory.

The regulations categorise PAs into three segments:&nbsp;

Each one has specific account maintenance requirements. Additionally, PA-CB entities are now considered designated payment systems under the Payment and Settlement Systems Act (PSSA).

The RBI's recent rule changes, specifically the Regulation on PA-CBs, show that they've listened to feedback from stakeholders. This update resolves difficult requirements and unclear parts in the earlier draft OEIF Circular.&nbsp;

Now, companies involved in import-export deals must get approval from the RBI to act as a PA-CB. This means they have to follow RBI rules, which changes how they do business.

Note: We are still analysing the impact and potential changes due to this circular and we will update this article when the changes materialise

Ans: An OPGSP stands for Online Payment Gateway Service Provider. It is a type of payment aggregator that facilitates online payment transactions for import and export-related payments, regulated by the Reserve Bank of India (RBI) under specific guidelines.

Ans: In RBI, OPGSP full form is Online Payment Gateway Service Providers, which are payment aggregators that enable the processing and settlement of import and export-related payments, as per the RBI's regulatory framework and guidelines.

Ans: The RBI has set transactional thresholds for OPGSPs, with different limits for import and export transactions. The transaction limits were proposed to be raised from USD 2,000 to USD 3,000 for imports and from USD 10,000 to USD 15,000 for exports under the draft guidelines.

Q4. What are the documents required for opening an account in Online Payment Gateway Service Providers (OPGSP)?

Ans: The specific documents required for opening an account with OPGSPs may vary, but typically, they may include identification and business documents, as well as compliance with RBI's KYC requirements and other regulatory guidelines.

Q5. What type of accounts can be opened by OPGSP?

Ans: OPGSPs facilitate accounts for processing online payments, primarily for import and export-related transactions, as governed by the RBI's guidelines.

Q6. How Export Bill Regularisation would happen for end exporters receiving money through OPGSP?

Ans: Export Bill Regularisation for end exporters receiving money through OPGSPs would involve compliance with the RBI's guidelines, ensuring the proper transfer of funds from the NOSTRO account held by the authorized dealer bank (AD bank) outside India to the exporter's bank account in India, with a reduced timeline from seven to five days for export transactions, as per the draft guidelines.

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