GST on Services vs Products

Last updated: January 30, 2026

Introduction: GST on Goods and Services

Before the implementation of GST in India, goods and services were taxed under separate regimes. Goods were subject to VAT (Value Added Tax) at the state level and Excise Duty at the central level, while services were taxed under Service Tax, a central levy. The introduction of GST brought both goods and services under a single tax umbrella, creating a unified taxation system.

However, despite this unification, significant differences remain in how GST applies to goods versus services. These differences manifest in various aspects including classification codes, place of supply determination, reverse charge applicability, and compliance requirements. Understanding these distinctions is crucial for businesses that deal in both goods and services, as well as for service providers and traders navigating the GST framework.

Key Differences Between GST on Goods and Services

Classification: HSN Codes vs SAC Codes

One of the most fundamental differences between goods and services under GST lies in their classification systems.

HSN Codes for Goods

The Harmonized System of Nomenclature (HSN) is an internationally standardized system of names and numbers for classifying traded products. Developed by the World Customs Organization, HSN codes are used by more than 200 countries. In India, HSN codes are mandatory for GST invoicing and return filing.

HSN Code Requirements based on turnover:

• Turnover above ₹5 crore: 6-digit HSN code mandatory
• Turnover between ₹1.5 crore and ₹5 crore: 4-digit HSN code mandatory
• Turnover below ₹1.5 crore: HSN code not mandatory (optional 4-digit)
• Exports and Imports: 8-digit HSN code mandatory

Examples of HSN Codes:

• 1006: Rice
• 2710: Petroleum oils
• 3004: Medicaments
• 8471: Automatic data processing machines (computers)
• 8517: Telephone sets, including mobile phones

SAC Codes for Services

The Services Accounting Code (SAC) is a classification system developed specifically for services under GST in India. Based on the United Nations Central Product Classification (CPC), SAC codes help identify the applicable GST rate for each service.

SAC Code Requirements:

• 6-digit SAC code mandatory for all registered service providers
• Must be mentioned on invoices for services
• Required for GSTR-1 and GSTR-3B return filing

Examples of SAC Codes:

• 9954: Construction services
• 9983: Telecommunications, broadcasting and information supply services
• 9984: Support services
• 9985: Support services to education
• 9987: Maintenance and repair services
• 9982: Legal and accounting services

Place of Supply: Goods vs Services

The place of supply determines whether a transaction is intra-state (CGST + SGST) or inter-state (IGST). The rules differ significantly between goods and services.

Place of Supply for Goods

For goods, the place of supply is generally straightforward and based on physical location:

Place of Supply for Services

For services, place of supply rules are more complex and vary based on the nature of the service:

GST Rates: Comparison Between Goods and Services

Goods GST Rates

Goods are distributed across all GST rate slabs based on their nature:

• 0% (Nil): Essential food items, fresh produce, unbranded staples
• 0.25%: Rough diamonds
• 3%: Gold, silver, precious metals
• 5%: Basic necessities like edible oil, tea, coffee, coal
• 12%: Processed foods, mobile phones, Ayurvedic medicines
• 18%: Capital goods, industrial inputs, consumer durables
• 28%: Luxury goods, automobiles, tobacco, aerated drinks

Services GST Rates

Most services fall under the 18% bracket, with some exceptions:

Reverse Charge Mechanism: Goods vs Services

Under reverse charge mechanism (RCM), the recipient of goods or services is liable to pay GST instead of the supplier. The applicability differs between goods and services.

Reverse Charge on Goods

Reverse charge on goods is limited to specific scenarios:

• Import of goods (always under RCM)
• Purchases from unregistered dealers (suspended until further notice)
• Certain categories notified by the government
• Casual taxable person importing goods

Reverse Charge on Services

Reverse charge applies to a wide range of services:

• Legal services: Services provided by advocates or firms of advocates to business entities
• GTA (Goods Transport Agency): Transportation of goods by road (to certain categories of recipients)
• Director services: Services provided by a director to the company
• Insurance agent: Services provided by insurance agents to insurance companies
• Recovery agent: Services provided by recovery agents to banks/NBFCs
• Author: Services provided by authors to publishers (for music, literary works)
• Members of overseeing committee: Services provided to RBI, SEBI, etc.
• Import of services: All imported services (for business purposes)
• Certain categories of services: As notified by the government from time to time

Time of Supply: Goods vs Services

The time of supply determines when GST becomes payable. The rules differ between goods and services.

Time of Supply for Goods

The time of supply for goods is the earliest of:

1. Date of issue of invoice (or last date when invoice should be issued)
2. Date of receipt of payment
3. Date of delivery of goods (if invoice not issued)

Invoice Issuance Timeline for Goods:

• Before or at the time of removal of goods (for supply involving movement)
• Before or at the time of delivery (for supply not involving movement)
• On receipt of payment (if received before removal/delivery)

Time of Supply for Services

The time of supply for services is the earliest of:

1. Date of issue of invoice (or last date when invoice should be issued)
2. Date of receipt of payment
3. Date of provision of service (if invoice not issued within prescribed time)

Invoice Issuance Timeline for Services:

• Within 30 days of supply of service (general rule)
• Within 45 days for banking and financial services
• Continuous supply: On or before due date of payment or invoice date

Composition Scheme: Goods vs Services

The composition scheme provides a simplified compliance mechanism for small taxpayers. The eligibility and rates differ for goods and services.

Composition Scheme for Goods (Traders and Manufacturers)

• Eligibility: Taxable turnover up to ₹1.5 crore (₹75 lakhs for special category states)
• Rate for Traders: 1% of turnover (0.5% CGST + 0.5% SGST)
• Rate for Manufacturers: 2% of turnover (1% CGST + 1% SGST)
• Rate for Restaurants: 5% of turnover (2.5% CGST + 2.5% SGST)
• Inter-state sales: Not allowed (except for services up to specified limit)

Composition Scheme for Services (and Mixed Suppliers)

From 2019, service providers can also opt for the composition scheme:

• Eligibility: Taxable turnover up to ₹50 lakhs
• Rate: 6% of turnover (3% CGST + 3% SGST)
• Applicable to: Pure service providers and mixed suppliers (goods + services)
• Inter-state supplies: Allowed for services up to ₹20 lakhs or 10% of turnover, whichever is higher

E-commerce and GST: Goods vs Services

E-commerce operators play a significant role in both goods and services sectors, with specific GST implications.

E-commerce for Goods

• E-commerce operators (like Amazon, Flipkart) must collect TCS at 1% (0.5% CGST + 0.5% SGST or 1% IGST)
• Sellers on these platforms must register for GST (regardless of threshold)
• E-commerce operators must file GSTR-8 (TCS return) monthly
• Supplies through e-commerce are not eligible for composition scheme

E-commerce for Services

• Similar TCS provisions apply for services provided through e-commerce platforms
• Service providers on platforms (like Urban Company, Swiggy, Zomato) must register for GST
• Cloud kitchens and restaurants on food delivery platforms have specific compliance requirements
• Online service aggregators must comply with TCS provisions

Export of Goods vs Export of Services

Both exports of goods and services are treated as zero-rated supplies under GST, but the documentation and procedures differ.

Export of Goods

• Goods can be exported with payment of IGST (refundable) or under bond/LUT without payment of tax
• Export invoice must contain specific details including shipping bill number
• Proof of export realization required for refund claim
• Refund of input tax credit or IGST paid is available

Export of Services

• Services can be exported with payment of IGST (refundable) or under LUT without payment of tax
• Place of supply must be outside India for zero-rating
• Payment realization in convertible foreign exchange required (with some exceptions)
• Recipient of service must be located outside India
• Refund of input tax credit available

Compliance Requirements: Goods vs Services

Mixed and Composite Supplies

When goods and services are supplied together, special rules apply to determine the applicable GST rate.

Mixed Supply

A mixed supply involves two or more independent supplies of goods or services, or any combination, made together for a single price. The GST rate applicable is the highest rate among the individual supplies.

Composite Supply

A composite supply involves a principal supply and ancillary supplies that are naturally bundled and supplied together. The GST rate of the principal supply applies to the entire bundle.