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GST on Transport

The Goods and Service Act was passed by the Indian parliament on 29th March 2017 and came into effect on 1st July 2017. The Act replaced many indirect taxes levied in the country on the supply of goods and services. GST or Goods and Service Tax applies to all the goods and services that are supplied within India. There were many indirect taxes such as Central Excise Duty, Sales Tax, Purchase Tax, Entry Tax, State VAT, Luxury Tax, Entertainment Tax, Taxes on advertisement, special additional duty of customs etc. being levied on customers as well as suppliers at both state level and central level. All these indirect taxes have been embodied into one indirect tax called the GST.

Under GST, the tax is being levied when there is a sale of the goods and services. GST helps to eliminate spurting of any taxes. Moreover, it will establish the trade of the Indian market to be more competitive in both local as well as global markets.

Goods transportation in India

Transportation is the means to carry people and goods from one place to another. This has become essential in each stage of human civilization. Transportation has contributed the most to the economic, social, cultural, and political development and uplifting the nation. Speedy industrialisation is nearly impossible without a robust transportation system.

In India, there are four significant modes to transport goods from one place to another, and they are – rail, air, sea, and road. Rail is a relatively faster transportation mode and hence, is ideal for perishable goods. You will need rail haulage that can be purchased through a freight company, a third-party logistics or a terminal operator. If your goods need to travel long distances quickly, then the airway is the fastest mode available. There are some other costs one needs to consider, such as security fees, handling charges, duty cost, and taxes. If you want an economical way to transport goods in a large volume, then the waterway is a great method. However, this method is relatively slow and may not be as flexible as other modes of transportation. Road transportation is the most common method of transporting goods within India. It is generally used for goods that need to be carried for short or long distances and urgently. Moreover, road transportation is used before and after any of the above methods to ship the goods to final destinations.

What is the Goods Transport Agency (GTA)?

According to the GST Act, a Good Transportation Agency or GTA refers to a person or an identity that issues a "Consignment Note" or related document and offers services to transport goods by road. However, as per the definition, GTA might not always refer to a person or business identity that is hiring vehicles for the purpose of goods transportation. Hence, it is an individual or a business that issues a "consignment note", which qualifies as GTA. Apart from goods transportation from the consignor to the consignee, the following are some key services provided by a GTA:

  • Loading and unloading of goods
  • Packing and unpacking of goods
  • Trans-shipping of goods i.e., shipping of goods from one intermediary to another instead of end to end transport
  • Warehousing (temporary basis)

GST on Transportation Charges

Transportation is an essential part of the Indian economy because any issue in transportation disrupts the entire business channel. GST on transportation of goods as well as passengers via rail, road and air feature multiple GST rates ranging from 0 to 18%. GST on transportation charges has not led to much change in the transportation charges for rail and road. Moreover, the input tax credit is not always applicable, if GST on transport has been charged. In the following section, there are various aspects of the applicability of GST on the transportation of goods.

GST on Transportation of Goods

The transportation goods transferred by rail, road, air and inland waterways incur GST on transportation at an applicable rate. The following are some goods that are exempted from GST on transport.

  • Pulses, salt, milk, rice, flour, and other food grains
  • Relief materials for victims of man-made and natural calamities, accidents, mishaps, etc.
  • Agricultural products and organic products
  • Military and defense equipment
  • Newspaper, magazines registered with registrar of newspaper
  • If the gross value of the goods transported is less than Rs. 1500

GST is also exempted under the following cases

  • Transport of goods for personal use or household goods
  • Transport of goods of unregistered person

Apart from the above scenario, GST is applicable to the transport of goods at the following rates:

  • 5% GST on goods transport if Input Tax Credit is not obtained.
  • 12% GST is applicable if Input Tax Credit is obtained.

Alternatively, the following are the GST rates that may also be applicable.

  • 18% GST applicable to rental services of vehicles for road transportation, including trucks
  • 18% GST applicable to rental services to transport goods through aircraft
  • 18% GST applicable to rental services of freight vessels to transport goods through waterways.

The above GST rates are not exclusive and subject to periodic changes.

GST on Transportation of Passengers by Air

GST on air travel tickets of passengers is applicable as mentioned below:

  • 5% GST on economy class air tickets
  • 5% GST applicable on tickets of chartered flights for the purpose of a pilgrimage visit
  • 12% GST applicable to business class air tickets
  • 18% GST applicable to rental services of aircraft and chartered flights with or without operator

These charges are indicative and subject to periodic changes.

If you are travelling for business purposes, you can claim the GST on air tickets as Input Tax Credit (ITC) for your business. Moreover, airlines can claim Input Tax Credit on input services in case of economy class passengers. In the case of business class, airlines ITC can be claimed for spare parts, food items as well as other inputs except for fuel.

GST on Transportation of Passengers by Rail

GST on rail tickets availed for passenger transport is applicable at the following rates:

  • 18% GST on AC and First-Class train tickets
  • No GST on a sleeper and general class tickets
  • No GST on metro tickets

The above GST rates are not exclusive and subject to periodic changes.

GST on Road Transport of Passengers

Passengers travelling through road transport feature various GST rates depending upon the mode of transportation chosen. The following are the GST rates that are applicable to the transport of passengers travelling by road.

  • No GST on passengers travelling by road through public transport
  • No GST on transport by road of passengers through metered taxi/auto rikshaw or e-rikshaw
  • No GST on transport by non-AC contract carriage or stagecoach
  • 5% GST on transport by air-conditioned contract carriage or stagecoach
  • 5% GST applicable on transport by radio taxi and similar transportation services
  • 18% GST applicable on rental services of road transportation including cars, buses, coaches

The above GST rates are not exclusive and subject to periodic changes.

Consignment Note and eWay Bill

eWay Bill and Consignment Note are two critical documents involved in goods transportation. The consignment note is a document generated by a goods transportation agency instead of a receipt of goods for transporting goods by roadway. Once the consignment note is issued by the agency, the lien of goods is transferred to the transporter. The responsibility of the goods remains with the transporter until the goods are delivered to the consignee. The consignment note generated by the transporter does not attract any extra charges. The document will contain details of the goods being transported and the entity who is paying the GST.

A consignment note is serially numbered and includes –

  • Name of consignor
  • Name of consignee
  • Registration number of the vehicle in which goods are transported
  • Details of the goods
  • Place of destination
  • Place of origin
  • Person/entity is liable to pay GST – consigner, consignee, or the GTA.

An eWay Bill is generated before goods are transported from the origin. This bill has to be generated on the official portal of eWay Bill, and it is a key document for assuring compliance with GST law. The eWay Bill is compulsory for all GST registered individuals and business entities involved in the transportation of goods via roadways from one location to another. It is mandatory to obtain an eWay Bill whether the goods are being transported within the state or interstate. Details included in the eWay Bill include the name of consigner and consignee, GST paid on the goods being transported, and the details of the vehicle being used to transport the goods.

Frequently Asked Questions

Is freight subject to GST?

GST is applicable whenever an item is sold, or service takes place, unless they are GST free. Goods transported through any mode attracts GST.

What are the transportation services of goods exempted under the GST Act?

Following are the services by way of transportation of goods are exempted from GST:

  • By road except the services provided by a) A goods transportation agency and b) a courier agency
  • By inland waterways.

The services of transportation of goods by roadway continue to be exempt under the GST Act. GST is applicable only on the goods transport agency.

Is a GTA liable to register?

As per notification number 5/2017 – Central Tax, a person who is engaged in making only supplies of taxable goods and services on which reverse charges are applicable is exempted from acquiring registration under GST.

Therefore, a GTA does not have to register under GST, if it is exclusively transporting goods where the tax is required to be paid by the recipient under the reverse charge basis.

What is the reverse charge in GTA? Which businesses are liable to pay GST under reverse charges for a GTA?

Usually, a service provider is required to pay taxes. However, in case GTA provides the services to the following entities, the recipient of services is obliged to pay GST under reverse charge –

  • A society registered under the Societies Registration Act
  • Factory registered under the Factories Act, 1948
  • A co-operative society
  • A GST registered person
  • A corporate body established under a law
  • A partnership firm whether registered or not
  • A taxable person

What is the GST rate applicable to the transportation of agricultural produce?

No GST is applicable on transportation of agricultural produce.

Who is liable to pay GST while hiring a transport agency?

If a goods transport agency provides services to certain businesses, the recipient of services is liable to pay GST under reverse charge.

What is a non-taxable supply?

Non-taxable supply means the supply of goods and services that are not liable to tax under the CGST Act or the GST Act. Such transactions must be a supply as defined under the GST Act to qualify as a non-supply under the GST.

What is the difference between Exempt, Nil Rated, Zero Rated, and Non-GST supplies?

Zero Rated – Exports and supplies made to SEZ or SEZ Developers.

Nil Rated – Supplies that have a declared 0% GST rate e.g., salt, grains, jaggery, etc. Exempt – Supplies are taxable, but are not liable to pay GST and for which ITC cannot be claimed. E.g., fresh milk, fresh fruits, bread, etc.

Non-GST – These supplies do not come under the GST law. E.g., Petrol, Alcohol for human consumption, etc.

How has the goods transportation changed post-GST?

Before the implementation of GST, manufacturers had to set up warehouses in multiple locations. The goods from the manufacturing plant would reach different warehouses across the country before reaching distributors and retailers. This led to higher operating costs.

Under the GST regime, manufacturers have cut down on the number of warehouses, and as a result of this, remaining warehouses now have to handle a larger amount of goods. This makes the manufacturer use larger trucks to carry more goods. It will work out to be economical and efficient to operate from the manufacturers' point of view.

What is the place of supply of transportation?

According to GST regime, the place of transportation is defined as a location of GST registered recipient and place of supply becomes a place where goods are given for transportation (if the recipient is registered).

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