Understanding GST on Freight: HSN/SAC Codes and Applicable Rates
This article clarifies the application of Goods and Services Tax (GST) to freight charges in India. It details how GST is applied to various transport scenarios, including the Reverse Charge Mechanism (RCM) for Goods Transport Agencies, and outlines specific HSN/SAC codes and rates for different freight services. The piece also covers conditions for claiming Input Tax Credit (ITC) on freight and lists exempted transport services.
When transporting goods, businesses encounter freight charges. This article clarifies the application of Goods and Services Tax (GST) to these charges, including eligibility for Input Tax Credit (ITC), relevant HSN and SAC codes, and the implications of the Reverse Charge Mechanism (RCM).
What are Freight Charges?
Freight charges are the costs businesses pay for moving goods between locations. These costs are influenced by several factors. Key components typically include:
- Mode of Transport: The method of shipment, such as road, rail, air, or sea, each with its own cost structure.
- Loading and Unloading: Expenses for handling goods at both the departure and arrival points.
- Forwarding Costs: Charges covering secure transit, appropriate packaging, and required paperwork.
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. |
Reverse Charge Mechanism (RCM) on Freight Charges
The Reverse Charge Mechanism (RCM) under GST shifts the tax liability from the supplier to the recipient, ensuring streamlined tax compliance for specific services in the transport and logistics sector.
The CBIC notification no. 03/2022-Central Tax (Rate) dated 13th July 2022 clarified the GST rates applicable to Goods Transport Agencies (GTAs) on both a forward and reverse charge basis as follows:
| Service Category | GST Rate (%) | Special Conditions/Notes |
|---|---|---|
| Goods Transport Agency (GTA) services - when the GTA does not opt to pay GST on a forward charge basis | 5% | Input tax credit is not allowed on goods and services used in supplying the service |
| Goods Transport Agency (GTA) services - when the GTA opts to pay GST on a forward charge basis | 5% or 12% | If the 5% rate is selected, input tax credit is not allowed on goods and services used in supplying the service. (Note that the option to pay GST on a forward charge basis must be exercised by the GTA by filing a declaration.) |
One must note the following:
- Other than GTAs or courier agencies, road transportation is exempt from GST.
- GTAs exclusively providing RCM-liable services are not required to obtain GST registration.
- Ancillary services (e.g., loading, unloading, warehousing) are part of the composite GTA service if billed together and taxed under RCM. Separately billed ancillary services are treated as independent taxable supplies.
The recipient can claim Input Tax Credit (ITC) where 12% GST has been paid, in all applicable cases unless restricted (e.g., ITC on freight for tax-exempt goods).
GST Rate and HSN Code on Freight Services
For GST purposes, freight includes various transportation modes. Each has specific GST implications, which businesses should understand for effective tax compliance.
| Type of Transportation Service | HSN Code | Applicable GST Rate | Notes |
|---|---|---|---|
| Goods Transport Agency Services | 9965 | 5% / 12% | 5% (without ITC) or 12% (with ITC) under forward charge, and 5% (without ITC) under reverse charge |
| Transport of goods by rail (other than exempted goods) | 9965 | 5% | Input tax credit is not allowed on goods used in supplying the service |
| Transport of natural gas, petroleum crude, motor spirit, high speed diesel or aviation turbine fuel through pipeline | 9965 | 5% | Input tax credit is not allowed on goods used in supplying the service |
| Transport of goods by ropeways | 9965 | 5% | Input tax credit is not allowed on goods used in supplying the service |
| Goods transport services (other than specified categories) | 9965 | 18% | No special conditions |
| Transport of goods by road except the services of a GTA, a courier agency, or by inland waterways | 9965 | Nil | No special conditions |
| Transport of goods in a vessel by a person located in a non-taxable territory to a person located in a non-taxable territory from outside India to a customs station in India | 9965 | 5% | Input tax credit is not allowed on goods used in supplying the service |
| Transport of goods by an aircraft from a place outside India to a customs station in India | 9965 | Nil | No special conditions |
| Renting of goods carriage (with fuel cost included) | 9966 | 12% | No special conditions |
| Time charter of vessels for the transport of goods | 9966 | 5% | Input tax credit is not allowed on goods (other than ships, vessels and tankers) has not been taken |
| Supporting services in transport (does not include services by a GTA) | 9967 | 18% | Excludes GTA services |
| Postal and courier services | 9968 | 18% | No special conditions |
List of Freight Services Exempt from GST
| HSN Code | Exempt Transport Services | GST Rate |
|---|---|---|
| 9965 | Services by way of transportation by rail or a vessel within India (a) Relief materials for victims of natural or man-made disasters, calamities, accidents or mishaps (b) Defence or military equipments (c) Newspaper or magazines registered with the Registrar of Newspapers (e) Agricultural produce (f) Milk, salt and food grains including flours, pulses and rice, and (g) Organic manure | Nil |
| 9965/9967 | Services provided by a goods transport agency, by way of transport in a goods carriage of- (a) Agricultural produce (b) Milk, salt and food grains, including flour, pulses and rice (c) Organic manure (d) Newspaper or magazines registered with the Registrar of Newspapers (e) Relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishaps, and (f) defence or military equipments | Nil |
Input Tax Credit (ITC) on Freight Charges
Businesses can claim Input Tax Credit (ITC) on freight charges if these costs are directly related to their business activities. To do so, certain conditions must be met:
| Condition | Requirement |
|---|---|
| GST Registration | Your business must be GST-registered |
| Freight for Business Use | Must be used for business purposes |
| Proper Documentation | Keep invoices to claim ITC |
By claiming ITC, businesses can offset the GST paid on freight against their overall tax liability. However, ITC on freight is not permitted when GST has been paid at the 5% rate. Refer to the GST rates table above for specific instances where ITC is disallowed on GST paid for freight charges.