Taxability of Freight on Agricultural Produce under GST

Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services. It is a destination-based tax system that has replaced multiple indirect taxes. GST is applicable to all goods and services, including agricultural produce. In this article, we will discuss the taxability of freight on agricultural produce under GST. Let's begin by understanding the concept of agricultural produce under GST.

Agricultural Produce under GST

The term "agricultural produce" has been defined under GST. As per Section 2(1) (a) of the CGST Act, 2017, agricultural produce means any produce out of cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products, on which either no processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.

Now that we understand the definition of agricultural produce under GST, let's move on to the taxability of freight on agricultural produce.

Taxability of Freight on Agricultural Produce

Freight is the cost incurred in transporting goods from one place to another. It is an important element in the supply chain of any business. Under GST, the taxability of freight on agricultural produce depends on various factors such as the place of supply and the type of transaction.

The taxability of freight on agricultural produce can be broadly classified into two categories:

Inter-state Supply of Agricultural Produce

In case of inter-state supply of agricultural produce, the freight charges are taxable under GST. The place of supply in such cases is the location of the recipient. Hence, the tax will be charged at the rate of IGST (Integrated Goods and Services Tax).

For example, if a farmer in Maharashtra sells his agricultural produce to a buyer in Uttar Pradesh and incurs freight charges of Rs. 10,000, then the IGST will be calculated on the value of the goods plus the freight charges.

Intra-state Supply of Agricultural Produce

In case of intra-state supply of agricultural produce, the taxability of freight charges depends on the type of transaction. If the transaction is a composite supply, then the freight charges are included in the value of the goods and are taxable at the rate of GST applicable to the goods.

On the other hand, if the transaction is a mixed supply, then the taxability of freight charges depends on the rate of tax applicable to the principal supply. The principal supply is the supply of goods or services which constitutes the predominant element of the transaction.

For example, if a farmer in Uttar Pradesh supplies wheat along with packing material to a buyer in the same state and incurs freight charges of Rs. 10,000, then the taxability of freight charges will depend on whether the transaction is a composite supply or a mixed supply. If it is a composite supply, then the freight charges will be included in the value of wheat and taxed at the rate of GST applicable to wheat. However, if it is a mixed supply, then the taxability of freight charges will depend on the rate of tax applicable to wheat, which is the principal supply.

Conclusion

It is important for businesses engaged in the supply of agricultural produce to understand the taxability of freight charges under GST. The taxability of freight charges depends on various factors such as the place of supply and the type of transaction. Hence, it is advisable to consult a tax expert to ensure compliance with GST regulations.