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.
Under GST, tax on the shipping, freight, and logistic charges have changed.
Under the erstwhile 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.
According to GST law, the place of transportation is defined as:
Once the service receiver is identified, the person liable to pay GST must be identified as the Goods Transport Agency (GTA) or the service recipient. It depends on which category the service recipient falls into as per reverse charge provisions under GST. GTA may allow the recipient to pay tax at 5% with no input tax credit, or it may pay tax at 12% with full input tax credit.