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The impact of GST on shipping charges has been significant, with the introduction of a uniform tax rate on transportation by sea. With the introduction of GST, a uniform tax rate of 5% is applied on ocean freight and shipping charges. The implementation of GST has brought about a significant reduction in the overall tax burden on the shipping industry, as the tax rate under GST is lower than the earlier tax rates.

 

The Indian shipping industry is expected to grow at a CAGR of 12.9% between 2021-2026, with the total revenue of the industry reaching ₹2.4 trillion by 2026. The implementation of GST has contributed to this growth by reducing the overall tax burden on the industry, making it more competitive and attractive to investors.

Shipping Charges Prior to GST

Prior to the implementation of the Goods and Services Tax (GST) in India, the taxation system for shipping charges was complex and varied. Various taxes such as Service Tax, Value Added Tax (VAT), and Central Excise were levied on different components of the shipping charges. This led to confusion and increased compliance requirements for businesses involved in the shipping industry. Additionally, the multiple tax rates resulted in a higher tax burden on the industry. 

 

The total tax burden on the shipping industry under the previous tax regime was around 18-22%, which included various taxes such as Service Tax, VAT, and other levies. This made the shipping industry less competitive and attractive to investors. With the introduction of GST, a uniform tax rate of 5% is applied on ocean freight and shipping charges, which has reduced the overall tax burden on the industry and contributed to its growth.

Shipping Charges Under GST & GST Rates

The implementation of GST in India has simplified the taxation system for shipping charges. A uniform tax rate of 5% is applied on ocean freight and shipping charges under GST. This has reduced the overall tax burden on the shipping industry and made it more competitive and attractive to investors. 

 

The regime has streamlined the tax system and reduced compliance requirements for businesses involved in the shipping industry. It is important to note that GST is not applicable on transportation of goods by vessels which are not registered in India. The registration of vessels is a key factor in determining the applicability of GST on shipping charges. 

 

The GST system has also facilitated the use of technology in the shipping industry, as businesses are required to file returns online and use digital invoicing and record-keeping systems. This has led to greater efficiency and accuracy in the tax system and has reduced the administrative burden on businesses involved in shipping.

Goods Exempted from GST Charges on Shipping

Under the GST system in India, certain goods are exempted from these charges on shipping. The following goods fall under this:

  • Live animals, fish and crustaceans, mollusks, and aquatic invertebrates

  • Meat and edible meat offal, processed fish, crustaceans, mollusks and other aquatic invertebrates

  • Fruits, vegetables, nuts and other edible parts of plants

  • Cereals, grains, and other products of the milling industry

  • Pharmaceutical products and medical devices

  • Printed books, newspapers and periodicals

 

  • Natural or cultured pearls, precious or semi-precious stones, precious metals and articles made of these materials

 

 

The above-mentioned goods fall under the GST exemption list for shipping charges. It is important to note that the exemption applies only to the transportation of these goods by sea, and other modes of transport may be subject to GST charges. Businesses involved in the transportation of exempted goods are still required to maintain accurate records and file regular returns under the GST system.
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What is the Place of Supply for Transportation?

The place of supply for transportation services under GST is determined based on the type of transportation and the destination of the goods being transported. According to these regulations, the place of supply for transportation services is determined as follows:

  • For transportation of goods by road: The place of supply is the location of the recipient of the services.

  • For transportation of goods by rail, air, or vessel: The place of supply is the location where the goods are handed over for transportation.

 

Note that the place of supply is used to determine the applicable GST rate for the transportation services, including shipping charges. If the transportation service is provided within the same state, it is considered an intra-state supply and is subject to the GST rates applicable within that state. If the transportation service is provided between different states, it is considered an inter-state supply and is subject to the Integrated GST (IGST) rate. 

 

Businesses involved in the transportation of goods are advised to consult with tax professionals to ensure compliance with the GST regulations and to correctly calculate the GST rate for shipping charges.
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Conclusion

The implementation of the Goods and Services Tax (GST) in India has had a significant impact on the shipping industry, particularly in terms of shipping charges. While there have been some challenges in the implementation of GST, particularly with regard to the classification of goods and services and the determination of the place of supply. Overall the GST system has been successful in simplifying the tax structure for the shipping industry. 

 

Moving forward, it will be important for businesses involved in the shipping industry to stay up-to-date with any changes to the GST regulations and to ensure compliance with these regulations in order to avoid penalties and fines. Continued collaboration between industry stakeholders and government officials will be key to ensuring the continued success of the GST system and the shipping industry as a whole.

FAQs for Impact of GST rates on Shipping Charges

How has the logistics of transporting goods changed under GST?

  1. Under the GST system, the process of transporting goods has become more streamlined and efficient. The elimination of state borders for tax purposes has resulted in a reduction of wait times and delays at checkpoints, which in turn has reduced transportation costs and improved delivery times. 

 

Also, the introduction of the e-way bill system, which requires businesses to generate an electronic invoice for the movement of goods worth more than ₹50,000, has improved transparency and accountability in the transportation of goods.

When purchasing a product from an e-commerce portal, are shipping charges taxable under GST? What is the applicable tax rate for shipping charges?

  1. Yes, shipping charges are taxable under the Goods and Services Tax (GST) in India when purchasing a product from an e-commerce portal. The applicable tax rate for shipping charges depends on the nature of the product being shipped and the distance of transportation. As per the GST rules, transportation of goods by road attracts a tax rate of 5% under the GST system. For transportation of goods by air or sea, a tax rate of 12% is applicable under the GST system. 

Therefore, when purchasing a product from an e-commerce portal, the shipping charges levied by the seller will attract either a 5% or a 12% GST rate, depending on the mode of transportation used. It is important to note that the GST rate applicable on the product being purchased will be separate from the GST rate applicable on the shipping charges.

 

When should GST be charged on freight or transportation costs on a tax invoice?

  1. GST should be charged on freight or transportation costs on a tax invoice when the transportation of goods is considered as part of the supply of goods or services. If the transportation of goods is an integral part of the sale of goods or services, then GST should be charged on the freight or transportation costs.

 

For example, if a business includes the transportation cost in the invoice while selling the product, then GST should be charged on the total amount, including the transportation cost. Similarly, if a service provider offers a service that includes transportation, then GST should be charged on the total value of the service, including the transportation cost.

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Bajaj Finserv Direct Limited ("Bajaj Markets") offers to its customers, various financial products and services through its digital platform as a registered Investment Adviser with SEBI, registered Third-Party App Provider (UPI payments), and as DSA or Digital lending platform of its Partners. Further, Bajaj Markets also offers a marketplace e-commerce platform to facilitate transactions between customers and sellers on-boarded on the platform. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522 Investment Adviser, SEBI registration: INA000016083 (Validity - Aug 11, 2021 - Perpetual)
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