When a Goods Transport Agency (GTA) is required to pay tax on a specific freight service at a specific rate, this is referred to as GST on freight. When it comes to the GST rate on freight charges, there are two alternatives. This tax may be paid by GTA at a rate of 5% without input tax credit as of September 9, 2020, or at a rate of 12 percent with the inclusion of the same.
Freight is the term used to describe the bulk conveyance of products by train, truck, plane, or ship. Because freight transport is the most prevalent means of transportation for enterprises delivering goods, the implementation of GST on freight rates has had an impact not just on the Indian freight sector but also on a number of other industries.
In most cases, freight is handled by a GTA (Goods Transport Agency) or common carriers such as courier services. A GTA is a person who provides services for road freight transport and issues consignment notes.
Who is liable to pay GST on freight?
Individuals who are recipients of freight services, i.e., those who bear the expense of freight, are required to pay GST on freight. In other words, if the consignor or sender pays the GTA for freight expenses, the latter will be considered the service recipient. As a result, the GTA will be responsible for paying GST on the services provided. On the other hand, if the consignee is responsible for paying the freight charges, the same company is also responsible for paying the freight tax.
As a result, the freight tax might be paid by either the GTA or the service user. It will, however, rely on the situation of a beneficiary who falls into one of the following categories.
GST will have to be paid by the service recipient based on reverse charge in the event of the listed persons in the following table when GTA performs the freight service.
1. Factory established in accordance with the Factories Act of 1948
2. A GST-registered individual
3. A legal entity formed in accordance with applicable laws.
4. A cooperative society that is legally recognized.
5. A partnership firm as well as a group of people
6. Society registered under Societies Registration Act, 1860
7. Casual taxable person
It should be noted that even if their annual revenue is smaller than the threshold, the above-mentioned categories of people will be required to register for GST. On a reverse basis, these businesses must pay GST on freight charges. It will make them instantly eligible for a GST input tax credit.
If a registered GTA provides freight service to an entity that does not fall into one of the above categories, the GTA is responsible for paying tax on a reverse charge basis. It will be determined by the freight service. These are some examples of such entities:
1. Individuals who are unregistered
2. Hindu Undivided Family Unregistered
3. Unregistered Sole Proprietor
Is it necessary to register a GTA with GST?
Whether or not a GTA is required to register under GST is totally dependent on the entity to which their services are provided. It indicates that if a GTA only offers transportation to particular entities (who must pay reverse charge tax), the GTA will not be required to register under GST. In this scenario, GTA is excluded because their entire service will be powered by reverse charge sources. As a result, they will not have to pay any taxes.
However, a GTA that is not involved in providing transportation services to organisations that are required to pay reverse charge tax must register under GST. When the total turnover crosses Rs.20 lakh, this has to be done. These include GTAs that provide services to Hindu Undivided Families, sole proprietors, and other small businesses.
GST Rate for Freight Charges
Freight charges are basically fees paid for the transportation or carrying of commodities. This type of transportation can be done by land, air, or sea. As previously stated, the GST rates on freight charges are:
(1) 5% (without input tax credit), and
(2) 12%. (with input tax credit).
GST on freight charges for forwarding services
Freight forwarding and logistics services, as well as the transfer of commodities by any means of transportation, would be considered a service provider. Whether or not GST applies to freight forwarding or logistics services depends on whether the shipment is domestic or foreign.
GST on freight charges in the Supply Invoice
GST would be paid on the value of the supply at the standard rate, which would vary depending on the products delivered. If freight charges are added to the supply value indicated in the bill, the freight charges will be subject to the same rate of GST as the supplied value.
There are, however, exemptions for certain commodities that do not have a GST rate. The following is a list of exemptions –
1. Transporting salt, milk, and food grains such as pulses, wheat, rice, and other grains.
3. Transporting military or defence equipment 2. Transporting agricultural produce
4. Organic manure transportation
5. Transporting such magazine or newspaper that is registered with the Registrar of Newspaper
6. Transporting disaster relief items to victims of natural disasters, accidents, and other calamities.
7. Transporting products for which the total cost imposed for transportation of all commodities for one consignee is less than Rs.750.
8. Transporting goods if the total amount imposed on a single carriage for a consignment is less than Rs.1500
As previously stated, three entities are involved in determining GST responsibility for freight charges —
- Parties delivering goods
- Transporting the goods party (GTA)
- Recipient of the items (Consignee)
It’s crucial to figure out who will finally be getting the freight service in order to evaluate the obligation. The recipient of the freight services will also be accountable for the GST liability.
Will Freight Charges on Supply Invoices be subject to GST?
The value of the supply is relevant when determining GST on freight charges in an invoice. This tax will be paid on the supply value of the products being transported at standard rates. If a freight charge is added to the bill’s value of supply, the GST rate on freight charges will be the same as the GST rate on the supply value.
These are some of the nuances that anyone involved in delivering or receiving freight services should be aware of when it comes to GST. Understanding the tax application aids in estimating the costs that will be incurred in the course of acquiring or providing such services.