GST on ocean freight applies to the transportation of goods by sea in international trade and determines whether tax is payable under the forward-charge mechanism (FCM) or reverse-charge mechanism (RCM). It affects importers, exporters and logistics providers, depending on the contract terms, such as Cost, Insurance and Freight (CIF) or Free on Board (FOB). The GST treatment also impacts input tax credit (ITC) eligibility, valuation of imports and overall landed cost.
Understanding these current rules, exemptions and judicial rulings is essential for compliance and cost control.
How does GST apply to ocean freight shipments?
Ocean freight is a crucial part of international trade and GST on it depends on the type of freight arrangement and the applicable legal provisions.
Understanding freight types
Freight charges in international trade are generally classified into two main types:
- Based on the CIF value: Here, the supplier does not impose any separate transportation charges on the importer. The total value of the goods, including freight, is reflected on the invoice issued by the exporter. The recipient pays the invoice amount as it appears.
- Based on FOB value at the loading port: In this case, the importer directly hires and pays the ocean freight service provider for transporting the goods.
GST rate on ocean freight
According to Notification No. 11/2017 – CGST (Rate), entry 9(ii), the applicable GST rate on ocean freight is 5%, subject to certain restrictions on ITC. Alternatively, the service provider can opt to charge 18% GST, allowing the recipient to claim ITC.
Who is liable to pay GST?
As per Section 2(93) of the CGST Act, the “recipient of supply of goods or services or both” is liable to pay GST where consideration is involved. This means that the person who pays for the freight services, whether included in CIF or directly under FOB, is considered the recipient for GST purposes.
How is GST charged on ocean freight for import services?
GST on imported services is governed by Entry 1 of Notification 10/2017 – IGST (Rate). Any service supplied by a person located outside India to a person in India is treated as an import of service.
Under this provision, the recipient of the service in India, usually the importer, must discharge GST under the reverse charge mechanism. This ensures that tax is collected on imported services, even if the supplier is located abroad.
The table below sets out GST liability, place of supply and applicable rate across inbound transaction types.
|
Transportation Service Provider |
Recipient of Transportation Service |
Place of Supply |
Type of Tax |
GST Rate / Notes |
|
India (UP) |
India (Tamil Nadu) |
Tamil Nadu (Section 12(8)) |
IGST |
5% / 18% (FCM) |
|
India (UP) |
India (UP) |
Uttar Pradesh (Section 12(8)) |
CGST + SGST |
5% / 18% (FCM) |
|
India (UP) |
Foreigner |
Uttar Pradesh (Section 13(9)) / Outside India (Sec 13(2) – FA 2023) |
CGST + SGST (FCM) / IGST (Sec 7(5)) (FCM) |
5% / 18% / Zero rated or IGST if export conditions not satisfied (Finance Act – 2023) |
|
Foreigner |
India (Tamil Nadu) |
Uttar Pradesh (Section 13(9) of IGST Act) / India (Sec 13(2)) |
IGST (RCM)* |
5% |
Note: Following the Supreme Court ruling in Mohit Minerals (2022) and government notification effective 1 October 2023, IGST under RCM on ocean freight for CIF imports has been exempted. The row marked RCM above reflects the pre-October 2023 position.
How is ocean freight treated under GST for exports?
Outbound international logistics refers to the transportation of goods through shipping lines to overseas destinations. GST treatment on outbound ocean freight has changed over time based on notifications and amendments.
The GST exemption on outbound ocean freight was originally granted from 25 January 2018 and was extended periodically before finally lapsing on 30 September 2022
To determine the nature of tax applicable, the place of supply provisions under the IGST Act must be applied. These provisions help determine whether IGST or CGST plus SGST applies, depending on the recipient location and transportation destination.
In certain cases, if export of service conditions are satisfied, outbound logistics services may qualify as zero-rated supply under GST provisions.
The table below summarises how taxability on outbound ocean freight changed before and after 1 October 2022:
|
Transportation Service Provider (Shipping Line) |
Recipient of Transportation Service |
Place of Supply |
Type of Tax |
Taxability (25 Jan 2018 – 30 Sep 2022) |
Taxability (w.e.f. 1 Oct 2022) |
|
India (UP) |
India (Tamil Nadu) |
Tamil Nadu (before 01.02.2019) / Outside India (Section 12(8)) |
IGST / IGST Exempted |
Exempted |
Taxable (FCM) |
|
India (Tamil Nadu) |
India (Tamil Nadu) |
Tamil Nadu (before 01.02.2019) / Outside India (Section 12(8)) |
CGST + SGST / IGST |
Exempted |
Taxable (FCM) |
|
Foreign Shipping Line |
India (Tamil Nadu) |
Outside India (Sec 13(9)) / India (Sec 13(2) – FA 2023) |
No levy / IGST – FA 2023 – Not applicable |
– |
Taxable under RCM – Finance Act, 2023 |
|
India (Gujarat) |
Foreigner |
Outside India (Section 13(9)) / Sec 13(2) – FA 2023 |
IGST |
Exempted |
Zero-rated |
Conclusion
Properly managing GST on ocean freight is crucial for smooth international trade and avoiding compliance issues. By correctly classifying shipments, tracking payments and applying the right GST rates, businesses can stay aligned with current regulations. Staying updated on changes and maintaining accurate records ensures consistent compliance and operational efficiency
For a streamlined approach to GST management and effortless reporting, consider using TallyPrime, which simplifies compliance and keeps your accounting accurate and transparent.
