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Published on:
February 20, 2023
By
Paramita

Understanding IGST on Ocean Freight Charges Under GST Regime

Goods and Services Tax (GST) was introduced in India in 2017, replacing all the indirect taxes levied by the Central and State Governments. GST is a destination-based tax system, which means that the tax is levied at the point of consumption instead of the point of production or sale. The GST Act has four types of taxes, namely Central GST (CGST), State GST (SGST), Integrated GST (IGST), and Union Territory GST (UTGST).

IGST is levied on the interstate movement of goods and services. It is applicable when the goods or services are transported from one state to another or when they are imported or exported out of the country. It is a tax that is collected by the Central Government and then distributed to the respective State Governments based on the destination where the goods or services are consumed.

IGST is also applicable on ocean freight charges, which are levied by shipping lines for transporting goods across international waters. The IGST on ocean freight charges was introduced in 2017, and it has been a topic of discussion among importers and exporters ever since.

Understanding IGST on Ocean Freight Charges

When goods are imported into India, the shipping line charges a fee for transporting the goods across international waters. This fee is called the ocean freight charge. Previously, this fee was not taxable under the Service Tax Act or the Customs Act. However, under the GST regime, the ocean freight charge is considered as a service and hence is taxable.

The IGST on ocean freight is levied at the rate of 18% as per the GST Act. The tax is applicable on the total value of the ocean freight charges, including any surcharges, fees, or other costs incurred during the transportation of goods.

For example, if the ocean freight charges for importing goods into India are INR 1,00,000, then the IGST applicable on it would be INR 18,000.

Impact of IGST on Ocean Freight on Importers and Exporters

The introduction of IGST on ocean freight charges has impacted the cost of imports and exports in India. Importers and exporters now have to bear an additional tax cost of 18% on the ocean freight charges, which was not the case earlier.

Earlier, importers used to pay the ocean freight charge directly to the shipping line, and the shipping line would then issue an invoice for the same. However, under the GST regime, the shipping line has to issue a tax invoice for the ocean freight charges, which includes the IGST component as well.

This has led to an increase in the administrative burden for importers and exporters, as they have to maintain records of the tax invoices issued by the shipping lines. Additionally, since the IGST on ocean freight charges is collected by the shipping lines, importers and exporters have to pay the tax upfront and then claim input tax credit (ITC) for the same.

Conclusion

The introduction of IGST on ocean freight charges has impacted the cost of imports and exports in India. The tax has led to an increase in the administrative burden for importers and exporters, as they have to maintain records of the tax invoices issued by the shipping lines. Additionally, since the IGST on ocean freight charges is collected by the shipping lines, importers and exporters have to pay the tax upfront and then claim input tax credit (ITC) for the same.

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Updated on:
March 16, 2024