Shipping charges are applicable when goods are shipped (transported or delivered) to a buyer or an end-user. The seller adds this charge to the bill (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, depending on the rate of tax.
Shipping charges under GST & GST Rates
service tax system, when goods were transported through ships as cargo, the goods leaving the country were called exports and goods entering the country were imports. The shipping charges on these goods attracted service tax. If the transportation happened through the air, both inbound and outbound shipments were not subject to service tax. The tax liability of terminal charges, warehousing, and cargo handling is determined based on the taxability of the principal service.
Under GST, the dealers convert logistics and freight forwarding into a supply of services (which includes movement of goods through the sea, inland waterways, air, rail, or road). GST must be charged on the cumulative value of supply. If the freight charge is included, then GST on freight charges must be levied at the tax rate same as the rate charged on supply of the goods or consignment.
The tax rate would accordingly take its source from the underlying item supplied if transportation charges are not separately given. However, as per the GST law, if the freight is exclusive and separately charged, then the GST rate on transportation service is 5%. However, transportation of certain essential items are exempted under GST.
Type of GST charged on freight forwarding is based on whether the transportation is national or international. If in case of domestic freight, transportation happens from a place in India to another place in the country. In this case, both points of origin and destination have to be inside the country.
On international transportation, the international freight rules are applied. This applies if both the place of origin and destination are outside India, if one of them outside India, or both outside India. Thus, this impacts the “Place of Supply” provision to determine the taxability of cross-border and inter-state transactions.
How GST Applies to Freight Charges
| Scenario | GST Applicability | Explanation |
| Freight charges included in the sale invoice | GST applies at the rate applicable to the goods sold | If freight is part of the total value of goods, it gets taxed at the same rate as the goods. |
| Freight charges are billed separately | GST applies as per the freight service rate. | When billed separately, the applicable rate depends on the type of transport used. |
| 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 recipient (buyer) pays GST under RCM for GTA services. |
| Freight charges for the export of goods | Exempt from GST | Freight services for exports are generally GST-exempt. |
FAQs
Q1. What is a Goods Transportation Agency (GTA)?
Any person who provides service in relation to transport of goods by road, and issues a consignment note. This becomes the GTA. Others might hire vehicles for goods transportation, but only those issuing a consignment note are considered as a GTA.
Q2. How has the logistics of transporting goods changed under GST?
Earlier to the implementation of GST, a manufacturer had to set up warehouses in multiple locations, although he was based out of different states to avoid CST levy and state entry taxes. The goods from his manufacturing plant would reach his own warehouses across the country, before reaching distributors and retailers. This led to higher operating costs.
Q3. What is a consignment note?
A consignment note is a document against the receipt of goods, issued by a goods transportation agency. This is issued for the purpose of transport of goods by road in a goods carriage. A consignment note will be serially numbered and has the names of the consignor and consignee (buyer and seller).
It also has a registration number of the goods carriage in which the goods are transported, details of the goods, place of origin, and place of destination. It also consists of details of who pays/or have paid the tax – consigner, consignee, or the GTA.
Q4. What is the HSN code for freight charges and forwarding charges in GST?
Freight and forwarding charges fall under HSN/SAC code 9965, specifically used for transportation of goods services.
