Impact of GST on Shipping Charges

Shreya Patel

19 Dec, 2023

The transportation companies and shipping lines play the most important role in the movement of products, making the logistics and shipping industries a foundation of the whole supply chain. The Indian economy depends heavily on the shipping and logistics sector, which makes up a sizeable portion of its Gross Domestic Product. According to the Economic Survey for 2021, the logistics sector contributes 13-14% of the nation’s GDP. Approximately 95% of India’s trade by volume and 70% by value are transported by sea. From April 2022 to January 2023, the capacity of India’s major ports was 646.10 million tons per annum (MTPA).

Twelve central and state tax regulations were merged under the GST, resulting in the largest tax reform to occur in the nation in its 75-year history of independence. Service tax, the main pre-GST tax component, was also incorporated.

What are the shipping charges?

When items get shipped, which means they are transported or delivered to a customer or end-user, shipping fees can be incurred. The seller adds these charges to the invoice and is the buyer’s responsibility to pay. Depending on the tax rate, there may also be a tax on the shipping costs if the item in question is taxable. Shipping expenses are the costs associated with moving goods by sea from one place to another place. These expenses include freight fees, charges for loading and unloading of goods, terminal handling fees, and other similar charges.

What is a place of supply?

• The location of transportation is defined by GST law as the following:
• The location of GST for the GST-registered recipient, and
• The point of supply changes from being a place where products are supplied for transportation if the person receiving them is not registered.
• The Goods Transport Agency or the person who receives the service must be designated as the party responsible for paying GST once the service receiver has been located.
• According to the GST’s reverse charge provisions, it is contingent upon which group the service recipient belongs to. GTA can permit the beneficiary to pay tax at a rate of 5% with no input tax credit or at a rate of 12% with full input tax credit.

Before the implementation of the GST

The taxation structures for shipping costs were intricate and diverse before introducing the Goods and Services Tax (GST) in India. On several elements of the transportation costs, taxes like Value Added Tax (VAT), Service Tax, and Central Excise were assessed. Confusion resulted, and the compliance requirements for companies operating in the shipping sector increased. Furthermore, the different tax rates increased the tax load on the industry. Under the former tax system, the overall tax burden upon the shipping industry ranged from 18 to 22% and comprised a number of taxes like the service tax, the value-added tax, and other levies.

What goods are exempted from GST?

There are some goods that are exempted from the goods and services tax. Following is the list of goods:

1. Fertilizers that are organic
2. Milk, edible grains which include flour, rice and legumes, and salt
3. Agricultural products
4. Goods which are used for victims at the time of natural disasters.
5. Newspapers
6. Magazines which are registered in the Newspaper registry
7. A consignment of less than 1,500 rupees includes cargo for which a fee is levied for carriage.

Impact of GST on shipping charges

The taxation of shipping costs has been made simpler in India due to the advent of GST. Under the GST, ocean freight and shipping costs are subject to a uniform tax rate of 5%. As a result, the shipping sector now faces a lower total tax burden, increasing its competitiveness and investor appeal.

The regime has simplified the tax code and eased the burden of compliance on companies operating in the maritime sector. It is important to remember that GST¹ is not applied when commodities are transported by vessels not registered in India. The registration of vessels is an important consideration for evaluating whether the GST on shipping charges is applicable. The GST system has made it easier for businesses to employ digital invoicing, record-keeping, and return filing systems, which helped promote the use of technology in the shipping sector. As a result, the tax system is now more effective and accurate, and the administrative load on shipping companies has decreased.

Conclusion

The GST has significantly impacted the Indian shipping sector. The method for calculating shipping costs changed, and the location of the transportation supply is crucial for figuring out the GST rate. In order to prevent fines and legal problems, owners of businesses and entrepreneurs who start businesses in the shipping sector must be aware of how GST may affect their operations.

Frequently Asked Questions

1. https://www.gst.gov.in/