Ankit Rahangdale is a seasoned finance professional with a distinguished background as a Chartered Accountant. Currently, he leads the Finance Department at Pice. With over five years of invaluable experience in the banking and finance sector, honing his expertise through esteemed institutions such as ICICI Bank and Standard Chartered Bank.
GST on freight is paid either by GTA or recipient under Reverse Charge Mechanism (RCM).
Freight GST rates: 5% (no input credit) or 12% (with input credit).
Certain goods like agriculture produce, relief items, and low-value consignments are GST-exempt.
GTAs exclusively under RCM don't need GST registration unless turnover exceeds ₹20 lakh.
GST liability depends on transport mode and recipient's GST registration status.
Goods and Services Tax or GST has critically impacted the transportation and logistics sector in India. A main area of interest in this case is the applicability of GST on freight charges. Whether companies are transporting goods within the country or involved in exporting or importing internationally, understanding the GST implications of freight is important for cost management and compliance.
Moreover, freight services offered by different transporters, like road, air, sea carriers and rail, attract different GST rates based on various factors, such as the type of goods, the status of the service provider and the mode of transport.
Hence, this blog will further discuss in detail, the concept of GST on freight charges, who can pay it, and other associated details.
What is GST on Freight?
When the Goods Transport Agency or GTA has an obligation towards the payment of tax on a specific freight service as per the rate established, it is referred to as GST on freight charges. The GST rate on freight has two options that are applicable to it.
Firstly, the tax may be paid off by GTA at the rate of 5%, without the input tax credit. As an alternative option, the tax shall be paid off at a 12% rate with the same in addition.
Here are the various freight services covered under the GST:
Air transport (domestic and international)
Road transport (Goods Transport Agency)
Ocean or sea transport (domestic & international)
Rail transport
Who is Supposed to Pay GST on Freight?
The recipient of the freight service in question, or the individual who pays for the freight will be required to pay the GST on freight as well. If the consignor/sender pays for the freight charges to the GTA, the latter shall be considered the recipient of the freight service.
Therefore, the GTA, in this case, will be liable to pay the GST on any freight services opted for. However, if the consignee pays for the freight charges, tax payment on freight shall also befall on the same person.
In simple words, the freight tax may either be paid by:
The GTA; or
The recipient of the service
The table below specifies who shall pay the GST on freight charges in the case of varying transportation modes:
Transport Type
GST Paid By
Goods Transported by road (normal conditions)
Service provider (transport company)
Goods transported by road (RCM applies)
Recipient of goods (registered business)
Goods transported by rail
Service provider (railway company)
Goods transported by air
Service provider (airlines)
Goods transported by sea
Service provider (shipping company)
Composite supply involving freight
GST paid by the supplier of the composite service (Example: E-commerce company)
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Note: The responsibility of payment of GST on freight charges will fall on an entity, depending on the recipient’s position under the following specified categories of people:
1. An individual registered under the GST
2. Factories registered under the Factories Act of 1948
3. A Co-operative society registered under the law
4. Societies registered under the Societies Registration Act, 1860
5. A corporate body established under the appropriate law
6. A Casual taxable person
7. Partnership firm & the association of persons
In the case of the specified categories of persons in the above-mentioned table, the GTA provides the freight service. GST shall have to be paid based on a reverse charge by the recipient of the service.
Note: Even if the turnover amounts are below the set threshold limit, the above-mentioned categories of persons have to be mandatorily registered under the GST system. The entities must pay GST on freight charges on a ‘reverse basis’. It shall make them eligible for an input tax credit under GST, automatically.
If a registered GTA extends the freight service to a category of entity that does not come under the scope of any of the above-mentioned categories, the GTA then assumes the obligation to pay tax on the reverse charge basis. The conditions will be different for specific types of freight services. Here are some examples of such entities:
The answer to whether or not the GTA should be registered under GST is subjective. It depends on the body to whom the GTA’s service is extended. For example, if the GTA extends transportation services to specific groups of individuals who have to pay tax on the basis of reverse charge, it does not have to register under GST.
In such a scenario, the GTA is exempted owing to their entire line of service being on the reverse charge supplies. As a result, they will not have to accept any additional tax liabilities.
On the other hand, GTAs may be extending their transportation services to Unregistered Bodies of Individuals, Hindu Undivided Families or sole proprietors. If a GTA is not extending transport services to those particular categories of people, who are obliged to pay tax on the reverse charge basis, the GTA is required to register under GST. This has to be mandatorily done when the turnover in the aggregate, overreaches the threshold limit of Rs. 20 lakh.
Rate of GST on Freight Charges
Freight charges are the fees that are paid for transportation/carriage of supplies or goods. GST on freight charges may be undertaken via land, air, or sea. The GST rate applicable on the freight charges is as mentioned below:
5% (without input tax credit)
12% (with input tax credit)
Further, there are exemptions on specific goods, i.e., no GST rate on freight is applicable in their cases. Take a look at the list of exempted goods below:
1. Agricultural produce
2. Organic manure
3. Relief materials for the survivors of natural calamities, disasters, accidents etc.
4. Goods where the gross amount imposed on consignment transport for a single carriage is below Rs. 1500
7. Magazine/newspaper that is registered with the Registrar of Newspaper
8. Goods where the gross amount imposed for transportation of aggregate goods for one consignee is below Rs. 750
In assigning the GST liability with respect to the freight charges, 3 types of entities typically are involved, including:
The party sending off the goods
The party responsible for transporting the goods (GTA)
The party on the receiving end for the goods (Consignee)
To establish the GST liability, it is important to determine which individual will be receiving the freight service in question. This is the case because the recipient who will be receiving the freight services will be obliged to bear the GST liability.
Services Given by GTA
The GTA extends services, mainly concerning the transportation of goods and others. Here is a list of the various intermediate/ancillary services extended by the GTA:
Will GST be applied for Freight Charges in Supply Invoice?
In order to determine the GST rate on freight charges in the invoice, details like the value of the supply, shall be crucial. The tax will be charged on the supply value as per the regular rates (on the basis of the goods being transported).
GST charged on the freight charges will remain the same as the value that will apply to the supply value if the freight fee is added to the value of the supply (mentioned in the bill).
Consignment Note
A consignment note is essentially a document issued by the GTA, against the receipt of goods. This is done to allow the transportation of the goods by road, via a carriage.
Reverse Charge Mechanism (RCM) on Freight
As per the Reverse Charge Mechanism (RCM), the GST rate applicable for the GTA services is 12%. There is a liability to pay off the GST shifts to the recipient from the supplier of the goods that are transported. Reverse Charge Mechanism or RCM is specifically relevant in the context of road transportation extended by the Goods Transport Agencies.
Overall, the implications of GST on freight charges have undergone active developments at multiple stages. With significant clarity on the topic now, the conditions and requirements are significantly more comprehensible to the average taxpayer.
GST is applicable to freight services including road transport (Goods Transport Agency), rail transport, air transport (domestic and international), and ocean or sea transport (domestic and international).
Understand who shall be responsible for bearing the GST obligations by referring to the comprehensive table and lists provided above, as it depends on the type of transport and the category of individuals that the transport services are extended to, by the GTA.
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FAQs
What is GST on freight charges?
GST on freight charges refers to the Goods and Services Tax applicable on transportation services provided by Goods Transport Agencies (GTAs). This GST is either paid by GTA or by the recipient under Reverse Charge Mechanism (RCM). The applicable rates are 5% without input tax credit or 12% with input credit. GST applicability varies according to the mode of transportation and the type of recipient involved.
Who is responsible for paying GST on freight charges?
GST on freight charges can either be paid by the GTA providing the service or the recipient receiving it. If the recipient is a registered entity under specified categories, GST must be paid on a reverse charge basis. For transportation services via rail, air, and sea, typically the service provider pays GST directly. Responsibility ultimately depends on service type, transport mode, and recipient status.
When does a GTA need GST registration?
A GTA must register under GST when its taxable turnover exceeds the threshold limit of ₹20 lakh. However, if the GTA exclusively provides services where GST is payable under reverse charge by recipients (like registered businesses), GST registration is not mandatory. If the GTA serves unregistered individuals or entities not covered by RCM, registration is required upon crossing the threshold.
Are any freight charges exempt from GST?
Yes, certain freight charges are exempt from GST, including transportation of agricultural produce, organic manure, relief materials for disasters, and defense-related equipment. Additionally, GST exemption applies if freight charged is below ₹1,500 per consignment or ₹750 per consignee in aggregate goods transport. Specific items such as milk, salt, food grains, newspapers, and magazines are also exempt.
What is Reverse Charge Mechanism (RCM) in GST for freight charges?
Reverse Charge Mechanism (RCM) shifts GST payment responsibility from the service provider (GTA) to the recipient of transportation services. Under RCM, the registered recipient directly pays GST at the applicable rate of 12% (with input credit) or 5% (without input credit). This mechanism mainly applies to road transportation provided by GTAs. Recipients paying GST under RCM can claim input tax credits if eligible.
Ankit Rahangdale is a seasoned finance professional with a distinguished background as a Chartered Accountant. Currently, he leads the Finance Department at Pice. With over five years of invaluable experience in the banking and finance sector, honing his expertise through esteemed institutions such as ICICI Bank and Standard Chartered Bank.
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