Whenever we ship goods, we incur freight charges. But do you know how GST is applied to this freight? In this article, we'll explain, in simple terms, the GST rules for freight. We'll also learn whether you can claim ITC on goods, what their HSN and SAC codes are, and how the reverse charge mechanism (RCM) works on freight.
Freight charges simply refer to the cost a business incurs to transport its goods from one location to another. This cost depends on many factors and can vary from time to time. The main components of this cost are as follows:
Component
Description
Mode of Transport
The method of shipping—such as road, rail, air, or ship. Each method has a different cost.
Loading and Unloading
Loading and unloading fees, which are charged at both the destination and destination.
Forwarding Costs
This includes the cost of safe delivery of the goods, packaging and preparation of necessary documents.
Scenario
GST Applicability
Explanation
Freight charges included in the sale invoice
GST applies at the rate applicable to the goods sold
If the freight charges are included in the total bill of the goods, then the same tax rate will be applicable on it as on the goods.
Freight charges are billed separately
GST applies as per the freight service rate.
When freight bills are raised separately, the tax rate will depend on the mode of transport by which the goods are sent.
Freight charges paid to Goods Transport Agencies (GTA)
GST applicable at 5% (without ITC) or 12% (with ITC) if the GTA opts to pay under forward charge, or 5% (without ITC) under the reverse charge mechanism
In most cases, the buyer (recipient) of GTA services is the one who pays GST under RCM. You can see the list of those covered by the reverse charge mechanism.
Freight charges for the export of goods
Exempt from GST
Freight services used for exporting goods to foreign countries are generally not subject to GST.
The reverse charge mechanism (RCM) under GST is a mechanism that shifts the tax liability from the supplier to the recipient of goods or services. This rule was introduced to simplify taxation in the transport and logistics sector.
CBIC Notification No. 03/2022-Central Tax (Rate), dated July 13, 2022 clarified the GST rates applicable to Goods Transport Agencies (GTAs) under forward and reverse charges, as follows:
Service Category
GST Rate (%)
Special Conditions/Notes
Goods Transport Agency (GTA) services - when the GTA does not opt to pay GST on a forward charge basis
5%
The goods and services used in providing this service do not get the benefit of Input Tax Credit (ITC).
Goods Transport Agency (GTA) services - when the GTA opts to pay GST on a forward charge basis
5% or 12%
If the 5% rate is chosen, ITC will not be available on goods and services used in providing the service. (Remember, the GTA is required to fill out a declaration form to opt for paying GST as a forward charge.)
Here are a few things to remember:
In fact, you can also claim input tax credit (ITC) on this, but only if 12% GST has been paid. This is also restricted in certain circumstances, such as not being eligible for ITC on the transportation of tax-free goods.
According to GST, freight transport involves different modes of transport. Businesses should thoroughly understand the rules for each mode to pay taxes correctly.
Type of Transportation Service
HSN Code
Applicable GST Rate
Notes
Goods Transport Agency Services
9965
5% / 12%
Forward charges are levied at 5% (without ITC) or 12% (with ITC), and reverse charges are levied at 5% (without ITC).
Transport of goods by rail (other than exempted goods)
The goods used in providing this service do not get the benefit of input tax credit.
Transport of natural gas, petroleum crude, motor spirit, high speed diesel or aviation turbine fuel through pipeline
Input tax credit is not available on the goods used in providing this service.
Transport of goods by ropeways
Goods transport services (other than specified categories)
18%
There are no specific conditions for this.
Transport of goods by road except the services of a GTA, a courier agency, or by inland waterways
Nil
Transport of goods in a vessel by a person located in a non-taxable territory to a person located in a non-taxable territory from outside India to a customs station in India
Transport of goods by an aircraft from a place outside India to a customs station in India
Renting of goods carriage (with fuel cost included)
9966
12%
Time charter of vessels for the transport of goods
This rate will be applicable only if input tax credit has not been availed on goods other than ships, vessels and tankers.
Supporting services in transport (does not include services by a GTA)
9967
This does not include GTA services.
Postal and courier services
9968
Exempt Transport Services
GST Rate
The following goods can be transported by rail or ship within India:
(a) Relief material for victims of natural or man-made disasters, accidents
(b) Defence or military equipment
(c) Newspapers or magazines registered with the Registrar of Newspapers
(e) Agricultural produce
(f) Milk, salt and food grains including flour, pulses and rice
(g) Organic manure
9965/9967
Carriage of goods by a Goods Transport Agency (GTA):
(a) Agricultural produce
(b) Milk, salt and food grains including flour, pulses and rice
(c) Organic manure
(d) Newspapers or magazines registered with the Registrar of Newspapers
(e) Relief material for victims of natural or man-made disasters, accidents
(f) Defence or military equipment
Now let's talk about the real deal. The good news is that yes, you can claim ITC—but only if the freight expense is directly related to your business. Most people do this and save on taxes.
Condition
Requirement
GST Registration
Your business must be registered under GST.
Freight for Business Use
This freight should be used solely for business purposes.
Proper Documentation
To claim ITC, you must have valid invoices.
You can reduce your total tax liability by claiming ITC on the GST paid on rent. However, it's important to understand this: If GST is paid on rent at a rate of 5%, then ITC is not available. You can review the GST rate table above to see in which cases this credit is not available.
If you send goods through a Goods Transport Agency (GTA), the forward charge applies to 5% (without ITC) or 12% (with ITC). The reverse charge (RCM) rate is 5%. We've provided detailed tax rates for other modes of transport, such as rail, air, or courier services, in the table above.
According to GST rules, the HSN or SAC code 9965 is used for freight and forwarding charges. This code is specifically designated for transportation services that move goods from one location to another. Transporters use this code when generating invoices.
Understand that the reverse charge mechanism (RCM) only applies to road transport services chartered through a Goods Transport Agency (GTA). If you're using other modes of transport, such as rail, air, or ship, they typically incur a forward charge, meaning the service provider collects the tax.
Yes, if you've ordered or shipped goods for your business, you can easily claim input tax credit (ITC) for the GST paid on the freight. But this is the biggest mistake people make—if your freight bill is charged GST at a 5% rate, no credit is available. Credit is only available if the tax is paid at a rate of 12% or higher.
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