Goods and Services Tax (GST) is a unified indirect tax system that subsumes various central and state taxes, simplifying the taxation structure in India. Within this comprehensive structure, the Harmonized System of Nomenclature (HSN) and the Services Accounting Code (SAC) indicate the exact position of products and services through standardized codes.
HSN and SAC codes play a crucial role in the GST framework. They help in streamlining the tax assessment process, enhancing transparency, and minimizing tax-related complexities for businesses and tax authorities alike.
If you are someone who wants to know the HSN code for renting commercial property or SAC code for renting commercial property, you are in the right place. Read on to know more about the HSN code for renting commercial property and the SAC code for renting commercial property.
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Understanding HSN and SAC Codes
HSN (Harmonized System of Nomenclature) Code:
HSN (Harmonized System of Nomenclature) codes are used to classify goods under GST. These internationally recognized codes help in the systematic and uniform classification of goods across borders, making it easier for businesses to identify the correct tax rates applicable to their products. Currently, taxpayers with Aggregate Annual Turnover of up to Rs. 5 crores are mandatorily required to report HSN codes in their GSTR-1.
The Harmonized System of Nomenclature (HSN) code is a standardized numerical system used globally to classify traded products.
Purpose of HSN Codes in GST:
The primary purpose of HSN codes in GST is to determine the applicable tax rates for different goods. The GST tax rates vary based on the HSN codes assigned to the products. Having a well-defined classification system enables businesses to easily identify the correct tax rates and comply with GST regulations accurately. It also helps tax authorities in tax assessment, minimizing errors, and ensuring uniformity in tax treatment across the country.
SAC (Services Accounting Code):
The Services Accounting Code (SAC) is a unique code used to classify various services under GST in India. Similar to HSN codes for goods, SAC codes provide a structured method of categorizing different types of services provided by businesses.
Purpose of SAC Codes in GST:
SAC codes are crucial in GST for services as they determine the applicable tax rates for each service. Different services attract different GST rates, and the SAC codes enable service providers to identify the correct tax rate for their offerings. Additionally, SAC codes help in simplifying the invoicing process for services rendered, making it easier for businesses to comply with GST requirements and for tax authorities to audit transactions accurately.
Codes for Renting of Commercial Properties: For renting commercial properties under GST, the specific codes are as follows:
HSN Code for rent of commercial property: 997212
SAC Code for rent of commercial property: 997212
What is Commercial Rent HSN Code 997212 ?
HSN code 997212 pertains to "Renting of Commercial Immovable Property Services." It is used to classify services related to the renting or leasing of commercial properties for various business purposes. The scope of this HSN code includes the rental of office spaces, retail outlets, warehouses, industrial units, and other commercial properties for commercial activities.
Applicability in Different Scenarios:
HSN code 997212 is applicable in:
1.Commercial Property Rent:HSN code 997212 is primarily applicable when renting or leasing commercial properties. This includes office spaces, retail outlets, shopping complexes, warehouses, and other commercial establishments.
2.Industrial Property Rent: Businesses engaged in leasing or renting industrial properties such as factories, manufacturing units, industrial parks, or workshops fall under the purview of HSN code 997212.
3.Residential Property Rent: While the primary focus of this HSN code is on commercial and industrial properties, it can also extend to rental or leasing services for residential properties. However, it's worth noting that there may be other specific HSN codes related to residential property rent as well.
4.Leasing of Buildings: Whether it's a short-term lease or a long-term rental agreement, HSN code 997212 covers the leasing of buildings for commercial or industrial purposes.
5.Renting Office Spaces: Businesses seeking office spaces for their operations, whether in commercial buildings or standalone offices, fall within the ambit of this HSN code.
6.Renting of Retail Spaces: The code also applies to those leasing or renting retail spaces like shops, boutiques, supermarkets, and malls for commercial purposes.
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Unraveling the SAC Code for Commercial Rent
What is the SAC Code for Commercial Rent under GST?
The SAC code for commercial rent received is 997212. This code is used to classify the services provided by landlords or property owners when they lease or rent out commercial immovable properties to businesses for various commercial activities.
Basically, when a landlord or property owner rents out a commercial property to a business entity, they are providing a service of "Renting of Commercial Immovable Property." This service falls under the ambit of SAC code 997212, as per the Goods and Services Tax (GST) classification system in India.
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SAC Code for HSN Code 997212
So, the connection between the SAC code and HSN code 997212 for commercial rent is all about how we classify and identify the service of "Renting of Commercial Immovable Property" under the GST system.
Although the SAC code is used for services and the HSN code is typically used for goods. In this case, they both refer to the same thing: renting commercial properties for business purposes. This consistency is important for GST compliance because it helps in avoiding confusion and making sure that businesses and tax authorities can accurately identify and classify the service of commercial rent.
Using the same code in both SAC and HSN makes it easier for businesses to report their commercial rent transactions in their GST returns, which makes compliance much simpler. It also allows for seamless integration of the tax classification process between services and goods, making the entire GST system more efficient and easier to manage.
Claiming Input Tax Credits (ITC)
The input tax credit is a mechanism under the goods and services tax regime that allows businesses to claim credit for the tax paid on inputs used to produce the products or services. For tenants renting commercial office space, ITC enables them to claim the GST paid on the rent against the GST paid on sales.
To understand better, read the following example:
Company M rents office space from Landlord N. The monthly agreement is Rs.2,00,000 GST on the rent = 18% of Rs.2,00,000 = Rs.36,000 Therefore, total rent payable by company M to landlord N = Rs. 2,36,000
Now, say company M provides consulting services and charges 18% GST on their invoices. Suppose they have 5 clients in a month, and the total GST collected amounts to Rs. 1,62,000
ITC Claim: Input GST (paid on rent): Rs.36,000 Output GST (collected by providing service): Rs.1,62,000 Net payable GST= Rs.1,62,000 - Rs.36,000 = Rs.1,26,000
Company M will be liable to pay only Rs.1,26,000 as GST to the government and not Rs.1,62,000, as Rs.36,000 was already paid as GST on rent.
But here, one needs to remember certain conditions for claiming ITC, like the rented property must be used only for business purposes, and the tenant has to be registered under GST. Read all the conditions in this blog.
Wrapping up
When it comes to dealing with HSN and SAC codes for commercial rent or any other services under GST, it is crucial to ensure accuracy and compliance.
It's essential to use the right HSN code for goods or the correct SAC code for services related to commercial rent. Any misclassification or incorrect code usage can lead to discrepancies in tax calculations and may attract undue attention from tax authorities. Thus, we encourage all readers, whether you’re business owners, landlords, or tenants, to double-check the codes applicable to your transactions.
Also, don't hesitate to seek professional advice if you find the classification process confusing or have any doubts about which code to use.
Whether you are looking to rent your commercial property or want to take an office space on lease, we at PropReturns are here to help you out! Reach out to us for any questions you may have.
