As per the Union Budget 2021-22, the Government of India has proposed to withdraw the exemption on the Integrated Goods and Services Tax (IGST) levied on the outbound ocean freight for both goods and services. As a result, from 1st October 2022, GST will be applicable on outbound ocean freight for both goods and services.
The exemption on the IGST levied on outbound ocean freight was introduced to reduce the cost of exports and make Indian exports more competitive in the global market. However, the government has now decided to withdraw this exemption to increase tax revenue and reduce the burden on other taxpayers who cannot avail of such exemptions.
This change in the tax regime is expected to impact the cost of exports and may affect the competitiveness of Indian exporters in the global market. Exporters will have to bear the additional cost of GST on outbound ocean freight, which may impact their profit margins. However, the impact will depend on various factors, such as the type of goods, the destination country, the freight cost, and the competition in the market.
Exporters and importers are advised to take note of this change in the tax regime and make necessary adjustments in their costing and pricing strategies to remain competitive in the market. They should also ensure compliance with the GST laws and maintain proper documentation to claim the ITC on the GST paid on outbound ocean freight.
GST exemption on outbound ocean freight means that the Integrated Goods and Services Tax (IGST) levied on the ocean freight charges incurred on the export of goods or services from India is exempted from taxation. In other words, the exporters are not required to pay IGST on the ocean freight charges incurred in the transportation of their goods or services outside India.
This exemption was introduced to reduce the cost of exports and make Indian exports more competitive in the global market. However, as per the Union Budget 2021-22, the government has proposed to withdraw this exemption from 1st October 2022. This means that GST will be applicable on outbound ocean freight for both goods and services, and exporters will have to pay GST on the ocean freight charges.
The withdrawal of the GST exemption on outbound ocean freight is expected to have a significant impact on the export industry in India. Some of the impacts are:
1. Increase in the cost of exports: The withdrawal of the exemption will increase the cost of exports, as exporters will have to pay GST on the ocean freight charges. This may make Indian exports less competitive in the global market.
2. Effect on small exporters: The withdrawal of the exemption may have a greater impact on small exporters who may not have the financial capacity to absorb the additional cost of GST on the ocean freight charges.
3. Increased compliance requirements: With the introduction of GST on outbound ocean freight, exporters will have to maintain proper documentation and ensure compliance with the GST laws.
4. Changes in pricing strategies: Exporters may need to revise their pricing strategies to accommodate the additional cost of GST on the ocean freight charges. This may affect the competitiveness of their products in the global market.
5. Impact on the logistics industry: The withdrawal of the exemption may also affect the logistics industry as it may lead to a shift in the mode of transportation from ocean freight to other modes like air freight or land transport, which may be more cost-effective.
In summary, the withdrawal of the GST exemption on outbound ocean freight is expected to increase the cost of exports and may impact the competitiveness of Indian exports in the global market.
Q. What is the GST exemption on outbound ocean freight?
A. The GST exemption on outbound ocean freight is the Integrated Goods and Services Tax (IGST) exemption that is currently available on the ocean freight charges incurred on the export of goods or services from India.
Q. When will the GST exemption on outbound ocean freight be withdrawn?
A. The GST exemption on outbound ocean freight will be withdrawn from 1st October 2022, as per the Union Budget 2021-22.
Q. What will be the impact of the withdrawal of the GST exemption on outbound ocean freight?
A. The withdrawal of the GST exemption on outbound ocean freight is expected to increase the cost of exports, as exporters will have to pay GST on the ocean freight charges. This may impact the competitiveness of Indian exports in the global market.
Q. How can exporters claim Input Tax Credit (ITC) on the GST paid on outbound ocean freight?
A. Exporters can claim ITC on the GST paid on outbound ocean freight by providing the necessary documentation to their GST registered suppliers. The suppliers can then issue a tax invoice showing the IGST charged on the freight charges. The exporters can claim ITC on the same while filing their GST returns.
Q. Will the withdrawal of the GST exemption on outbound ocean freight impact the competitiveness of Indian exporters?
A. The withdrawal of the GST exemption on outbound ocean freight may impact the competitiveness of Indian exporters, as they will have to bear the additional cost of GST on the ocean freight charges. The impact will depend on various factors, such as the type of goods, the destination country, the freight cost, and the competition in the market.
Q. How can exporters and importers prepare for the withdrawal of the GST exemption on outbound ocean freight?
A. Exporters and importers can prepare for the withdrawal of the GST exemption on outbound ocean freight by making necessary adjustments in their costing and pricing strategies. They should also ensure compliance with the GST laws and maintain proper documentation to claim ITC on the GST paid on outbound ocean freight.
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