On 17 October 2017 | Logistics Junction

GST for GTA's

The backbone of the vast Indian Transport System is its road network. With its routes spreading from the smallest villages to the largest cities, it has connected the people of India in a vast web. These roads bring all the supplies required. The organizations delivering these supplies are called Goods Transportation Agencies.

According to Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017, a Goods Transportation Agency (GTA) means “any person who provides service in relation to transport of goods by road and issues a consignment note, by whatever name called.”

What this means is that any firm or person may hire out vehicles in order to transport goods, only those issuing a consignment note will be considered to be a GTA.

The eligibility criteria for GTAs to come under GST are as follows. According to the text of the Act:

  1. Every supplier shall be liable to be registered in the State from where he makes a taxable supply, if his aggregate turnover in a financial year exceeds Rs. 20 Lakhs.
  2. Section 2(6) of CGST Act, 2017 defines Aggregate Turnover to mean Taxable Supplies, Exempt Supplies (Not leviable to tax + Nil rated + Exempt from Tax)
  3. Hence, if a GTA is providing services of transportation of goods by road and having aggregate turnover of more than Rs. 20 Lakhs, they need to get registered under GST.

Some fairly major changes to GTAs will take place under the new GST laws. Some of these changes will be positive, while others will be negative.

The first major change is that any GTA that supplies the following goods will be exempted from paying GST.

  1. Agricultural Produce
  2. Organic Manure
  3. Newspapers or magazines registered with the Registrar of Newspapers
  4. Milk, salt and food grain including flour, pulses and rice
  5. Relief materials meant for victims of natural or man-made disasters
  6. Defence or military equipment
  7. Goods, where consideration charged for the transportation of goods on a consignment transported in a single carriage is less than Rs. 1,500
  8. Goods, where consideration charged for transportation of all such goods for a single consignee does not exceed Rs. 750.

There are two types of organizations that have routinely hired out vehicles to transport goods, namely GTAs and express cargo operators.

One of the main advantages GTAs have held over express cargo operators has always been their rate of taxation. Express cargo operators were charged taxes at the rate of 18% pre-GST, while GTAs stood pretty at a mere 4.5%. Under GST, however, this huge advantage will be neutralized, and both cargo operators as well as GTAs will pay taxes at approximately 5%.

Another one of the biggest changes to the tax structure brought about by GST has been the inclusion of the Input tax credit system and the reverse charge system, both of which will serve to take the burden of paying taxes off the shoulders of the supplier.

Input tax credit is what will cause the equalization of taxes between GTAs and express courier operations. Input tax credit basically means at the time of paying tax on output, you can reduce the tax you have already paid on inputs and pay the balance amount.

Certain conditions need to be fulfilled before Input Tax Credit can be claimed by a person registered under GST. These conditions are:

  1. The dealer should be in possession of tax invoice
  2. The said goods/services have been received
  3. Returns have been filed.
  4. The tax charged has been paid to the government by the supplier.
  5. When goods are received in installments ITC can be claimed only when the last lot is received.
  6. No ITC will be allowed if depreciation has been claimed on tax component of a capital good

GTAs can opt for 12% GST with ITC or 5% GST with no ITC. However, the GTA has to give an option at the beginning of financial year. According to Notification No. 11/2017 Central tax (Rate) dated 28.06.2017 & GST Council 20th Meeting on 5th Aug, the restriction of ITC is only on goods or services used in supplying the GTA service, i.e., they are referring the GTA itself.

The second big change made is the reverse charge system. Reverse charge is a mechanism where the recipient of the goods and/or services is liable to pay GST instead of the supplier.

What does this mean? Usually, the supplier of goods is on the hook to pay tax on supply. In the case of reverse charge, the receiver becomes liable to pay the tax. In other words, the flow is reversed.

As per Notification No. 13/2017- Central Tax dated 28/06/2017 the person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the receiver of service.

If the supplier of goods (consignor) pays the GTA, then the sender will be treated as the recipient. If he belongs to the category of persons above then he will pay GST on reverse charge basis.

If the liability of freight payment lies with the receiver (Consignee), then the receiver of goods will be treated as a receiver of transportation services. If he belongs to any of the above category of persons, then he will pay GST on reverse charge basis.

However, if transports charges are less than 5000/- per day, no GST will be payable.

Before GST, the concept of reverse charges was already in existence under service tax. One of the goals of GST is to organize the hitherto highly unorganized and under-regulated sector of delivery via trucks. Transporters neither registered nor paid any taxes; hence the burden of tax had to be shifted to the receiver. It also removes the burden of tax from individuals and shifts it to suppliers, which tend to have more resources and are more capable of shouldering the burdens of taxation. Ideally, this will simplify the existing tax structure and allow a more equitable distribution of taxes.