The Goods and Services Tax (GST) is here and brings about reforms in indirect taxation in India. Freight and logistics are at the center of the GST, which has extensive provisions such as State Goods and Service Tax (SGST); Central Goods and Service Tax (CGST); Integrated Goods and Service Tax (IGST) and several other factors like time and place of supply, input tax credit, valuation, and provisions of transition.
Exports are zero-rated supply whereas imports are charged at the same rates as domestic goods and services, sticking to the destination principle.
What are the various GST provisions for the logistics and shipping industry of India?
At present, if goods get transported as cargo through ships, outbound shipment is considered exports, whereas inbound shipments attract service tax. If transportation is through the air, inbound and outbound shipments aren’t subject to service tax. Tax liability, connected with ancillary items such as warehousing, cargo handling, and terminal charges are basically determined on the taxability of the principal service.
“The reforms particularly affect the shipping and logistics industry. They need to know a number of things: taxes, tariffs and rate slabs, procedures for calculation and compliance. Apart from the input tax credit provision, there are several other new factors in the GST including twin rates, a destination system, exclusion, etc.,” said Shashank Dixit, CEO, Deskera.
Since GST doesn’t specify exclusion for air as compared to ocean freight, transactions, when a place of supply is inside the taxable territory, are levied with air and ocean freight charges with respect to GST.
Related Read: Assessing The Impact Of GST On The Common Man Of India
This converts logistics and freight forwarding into a supply of services that includes movement of goods by sea, inland waterways, air, rail, or road. GST on freight depends on whether transportation is national or international.
Moreover, while considering domestic freight, transportation has to happen from a place in India to another place in the country. Both points of origin and destination need to be in India. On the other hand, international freight rules apply when either place of origin or place of destination or both are outside India.
So, the impact is due to provisions of ‘Place of Supply’ to determine the taxability of cross-border and within-state transactions. According to the GST provisions, Place of Supply for transportation is defined as the following:
(a) location of the recipient if it is a GST-registered entity; and
(b) if the recipient is unregistered entity, place of supply deemed as a place where goods are given for transportation.
It remains to be seen how the logistics and shipping sector adapts to the new changes brought about by the GST regime.
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