The Goods and Services Tax (GST) is an essential tax reform that has been implemented in India and how the new taxation system has its effect on taxable individuals and business entities. It has also modified how goods and services are taxed in the country. In this post, we will provide you insights related to GST and its impact on shipping charges.

Shipping Charges under GST

Shipping charges are relevant when goods are shipped (transported or delivered) to a buyer or an end-user. The seller adds this charge to the consignment (to be borne/paid by the buyer). If the product in question is taxable, then there will be a tax on the shipping charges, too, relying on the rate of tax.

Treatment of Shipping Charges for Goods under GST

Under GST, shipping, freight, and logistic charges have seen quite a bit of change. As we know, when goods are transported through ships as cargo, the goods leaving the country are exports and the goods that are brought into the country are imported. These goods attract service tax.

If the transportation takes place through the air, both inbound and outbound shipments are no longer subject to service tax. The tax liability on terminal charges, warehousing, and cargo handling are decided based totally on the taxability of the principal service.

The GST law, however, does not properly specify what happens when there is an exclusion for air transport. While for freight charges on ocean transportation and transaction, it is clearly defined. Also, when the place of supply is within a taxable territory, it is not specified that will there be a tax with air and ocean with respect to GST.

Dealers convert logistics and freight forwarding into a supply of services (which includes transportation of goods through the sea, inland waterways, air, rail or road). GST on freight depends if the transportation of goods is on a national or international-scale.

If, in case of a home freight, transportation occurs from an area in India to another place in the country. In this case, both factors of starting place and place of destination have to be within the territories of the country. On overseas transportation, however, international freight guidelines are applied. This applies if:

(a) both the place of origin and destination are outside India; or

(b) either place of origin or place of destination is outside India

Thus, this influences the “Place of Supply” provision to determine the taxability of cross-border and inter-state transactions.

Place of Supply of Transportation

As per the GST regulations, the place of transportation is defined as:

(a) Location of GST-registered recipient;

(b) Place of supply becomes a place where goods are given for transportation (If the recipient is unregistered).

Frequently Asked Questions

Below are answers to the frequently asked questions with regard to the impact of GST on shipping charges

1. How has the logistics of transporting goods changed post-GST Prior to the implementation of GST, a manufacturer had to set up warehouses in more than one location, though he/she used to be primarily based out of a different state just to keep away from the CST levy and state entry taxes. The goods from his/her manufacturing plant would reach his/her own warehouses across the country, before reaching distributors and retailers. This led to higher operating costs. Under GST, manufacturers have cut down on the number of warehouses, and due to this, warehouses now have to handle a larger input. This makes the manufacturers use larger trucks to carry the goods that now weigh more tonnes than what used to be before. It will, however, work out to be reasonably economical and be efficient to operate, from the manufacturer’s point of view.
2. Are shipping charges taxable under GST when purchasing a product from an e-Commerce portal? If so, what is the rate of tax that is levied on shipping charges? When you purchase a product that falls under the 5% GST bracket, the shipping charge will be 5%. Likewise, if the product you purchase falls under the 18% GST bracket, then the shipping charge will be 18%. It is important to note that the GST rate is levied depending on which bracket the product will be categorized under GST, i.e. 5%, 18%, or 28%, respectively. For example, a popular e-Commerce platform Amazon has hiked the easy shipping charge for products from 15% to 18% (service charge) under GST.
3. If GST should be charged on freight or transportation cost charged on a tax invoice? The tax needs to be charged on the total value of supply. If the transportation cost is included, then GST has to be charged at the same rate of tax charged on supply. For example, if the goods supplied is charged at 18%, then you have to charge tax on transport cost at 18% as well. If you are not charging freight fees in the invoice and are directly paid by the purchaser of goods, then the Goods Transportation Agency (GTA) provision has to comply.
4. What is Goods Transportation Agency (GTA)? Any person who provides service in relation to transport of goods by road, and issues a consignment note is called a Goods Transportation Agency (GTA). Others might hire vehicles for the transportation of goods, but solely those issuing a consignment notice are regarded as a GTA.
5. What is a consignment note? A consignment note is a document or record of the receipt of goods that is issued by a GTA (Goods Transportation Agency). This consignment note is issued for the purpose of transport goods in a goods carriage by road. A consignment note will be serially numbered and has the names of both the consignor and consignee (i.e. buyer and seller). It additionally contains the registration number of the carriage of the goods in which the goods are transported, details of the goods, place of origin, and place of supply. The document also contains important points of who pays or has paid the tax – consigner, consignee, or the GTA.
6. Are there any goods on which GST will not be applicable whilst transportation? Yes. The goods listed below will not be applicable for GST (only when transportation is carried out by a goods transport agency):

• Milk, salt, and food grains (including flour, pulses, and rice)
• Agricultural produce
• Organic manure
• Relief materials meant for victims of a natural or man-made disaster
• Newspaper or magazine that is registered with the Registrar of Newspapers
• Defense or military equipment
• Goods for which consideration charged for the transportation of goods on a consignment transported in a single carriage, which is less than Rs. 1,500
• Goods for which consideration charged for transportation of all such items for a single consignee does not exceed Rs. 750.