GST on freight refers to when a Goods Transport Agency (GTA) has an obligation to pay tax on a particular freight service pursuant to a particular rate. There are two options applicable with respect to the GST rate on freight. This tax may be paid by GTA at the rate of 5% without input tax credit or tax may be paid at a 12% rate with the addition of the same.
An individual who is a recipient of the freight service, that is, the one who bears the cost of the freight will have to pay GST on freight. In other words, if the consignor or sender makes the payment for freight charges to the GTA, the latter will be held to be the recipient of service.
Hence, there will be a liability on the GTA to pay GST on the services availed. On the contrary, if freight charges are to be paid by the consignee, payment of the tax on freight will also be incumbent on the same entity.
Hence, the freight tax may be paid either by the GTA or the recipient of service. It will, however, depend on the position of a recipient included under these following categories of specified persons.
In the case of the specified persons in the following table, where GTA provides the freight service, GST will have to be paid based on reverse charge by the service recipient.
| 1. | Factory registered under the Factories Act, 1948 |
| 2. | A person registered under GST |
| 3. | A body corporate established under the relevant law |
| 4. | Co-operative society registered under the relevant law |
| 5. | Partnership firm as well as the association of persons |
| 6. | Society registered under Societies Registration Act, 1860 |
| 7. | Casual taxable person |
It should be noted in this regard that even when turnover may amount to be less than the threshold, these above-mentioned categories of persons will have to mandatorily register under GST. These entities have to pay GST on freight charges on a reverse basis. It will automatically make them eligible for an input tax credit under GST.
In the instance that a registered GTA extends freight service to such an entity not coming under the purview of any of these categories mentioned above, then it is the GTA that has the obligation of paying tax on the basis of reverse charge.
It will be dependent on a specific freight service. Examples of such entities are –
| 1. | Unregistered Body of Individuals |
| 2. | Unregistered Hindu Undivided Family |
| 3. | Unregistered Sole Proprietor |
Whether a GTA is required to be registered under GST or not, depends entirely on the body to whom their service is extended. It means that in the instance a GTA only provides transportation service to specific entities (who have to pay tax on reverse charge), it will not need to register under GST.
GTA is exempted in this case because their entire service will be on reverse charge supplies. Hence, they will not have to bear any tax liability.
However, with respect to a GTA that is not engaged in extending transport services to such entities which have an obligation to pay tax on reverse charge, the former has to mandatorily register under GST. It has to be done when the turnover in the aggregate exceeds the threshold limit of Rs.20 lakh.
These include those GTAs which extend services to Hindu Undivided Families, sole proprietors, etc.
Freight charges essentially mean a charge that is paid for transportation or carriage of goods. Such GST on transportation charges can be undertaken by way of land, air, or sea. GST rate on freight charges, as indicated above, are – (1) 5% (without input tax credit), (2) 12% (with input tax credit).
There are, however, exemptions on certain goods where there is no GST rate on freight. The exemption list is indicated below –
| 1. | Transporting salt, milk and food grains which include pulses, flour, rice etc. |
| 2. | Transporting agricultural produce |
| 3. | Transporting military or defence equipment |
| 4. | Transporting organic manure |
| 5. | Transporting such magazine or newspaper that is registered with the Registrar of Newspaper |
| 6. | Transporting relief materials for survivors of disasters, natural calamities, accidents etc. |
| 7. | Transporting such goods where gross amount imposed for transportation of aggregate goods for one consignee is less than Rs.750 |
| 8. | Transporting such goods where gross amount imposed on consignment transport for single carriage is less than Rs.1500 |
As discussed previously, in establishing GST liability with respect to freight charges, 3 entities are involved –
For the purpose of fixing liability, it is essential to determine which person will eventually be receiving the freight service. The recipient who receives the freight services, will, in turn, be responsible for bearing the GST liability as well.
The service includes the actual transportation of goods and other services such as:
To determine the GST rate on freight charges in invoice, the value of supply is relevant. This tax will be levied on supply value according to regular rates depending on the goods being transported. If a freight charge is added to the value of supply as mentioned in the bill, GST levied on freight charges will be the same rate as that applicable to the supply value.
The consignment note is a document that is issued by a goods transportation agency against the receipt of goods to transport the goods by road in the carriage.