GST On Ocean Freight – Rates, Rebate Rules & Compliance

GST, or Goods and Services Tax, is a unified tax system applied to India's supply of goods and services. It aims to streamline indirect taxes and make compliance easier for businesses.

Regarding ocean freight, especially for outbound international shipments, GST is applicable at 5% without Input Tax Credit (ITC) or 18% with ITC. However, no GST may apply in specific cases, such as when conditions for zero-rated supply are met.

For example, Mr. Arjun exports machine parts from India to Germany. His shipping company charges ₹1,00,000 as ocean freight. If he opts for 5% without ITC, he pays ₹5,000 as GST but cannot claim credit. If he chooses 18% with ITC, he pays ₹18,000, which he can later claim as input credit.

Categories of Ocean Freight with GST Rates and Prices

Ocean freight is the cost charged by a shipping line to move goods by sea. Under Indian GST rules, both outbound (exports) and inbound (imports) freight services are taxable at 5% without input tax credit (ITC) or 18% with ITC, depending on whether the recipient opts to claim credit

For example, if a shipping company bills ₹100,000 for transporting goods overseas:

• At 5% without ITC, the customer pays ₹5,000 and cannot reclaim it.
• At 18% with ITC, they pay ₹18,000 but can claim that amount back in their GST returns.

The same logic applies to freight coming into India. Both export and import ocean freight follow these clear rate options under the current GST regulations.

Here’s a simple table outlining the main categories of ocean freight, their typical invoice amounts, and the applicable GST rates. 

Types of Ocean Freight Services with HSN Codes

Here's a table that shows the types of ocean freight services along with their respective HSN codes:

Coastal and international freight includes goods sent by large ships across seas or along the Indian coast. This can involve container ships, bulk carriers, or refrigerated vessels.

Inland water freight means goods moved by boats or tankers through rivers, canals, or lakes within the country.

Impact of GST on the Ocean Freight Industry

The introduction of GST (Goods and Services Tax) in India has brought a unified tax system that replaced multiple older taxes. For the ocean freight industry, this has had both positive and challenging effects.

Positive Impacts

1. Simplified Tax Structure: Earlier, service tax, VAT, and other duties applied separately. GST has brought all taxes under one umbrella, reducing confusion.
    
2. Input Tax Credit (ITC): Businesses can now claim credit for GST paid on services used, such as loading, warehousing, and fuel (if they opt for 18% GST).
    
3. Export Boost: Under certain conditions, ocean freight for exports is treated as a zero-rated supply, meaning exporters may pay no GST or get refunds.

Challenges

1. Cost Pressure: For those choosing the 5% GST rate, input tax credit is not allowed, which increases the overall cost.
    
2. Complex Compliance: Shipping lines and freight forwarders must carefully classify transactions and choose between 5% (no ITC) and 18% (with ITC).
    
3. Confusion on Import GST: On import freight, GST is paid under the reverse charge mechanism, which sometimes leads to disputes.

Example:-

In Option 1, Rohan pays less GST upfront but cannot claim it back. In Option 2, he pays more GST but claims it as a credit on his return.

Input Tax Credit (ITC) on Ocean Freight 

Input Tax Credit (ITC) means a business can get back the GST it has paid on services or goods used for business. It helps reduce the total tax the business needs to pay to the government.

How It Works in Ocean Freight

When a business uses ocean freight (for imports or exports), it pays GST on the transport service. The business has two options:

1. Pay 5% GST – No ITC Allowed
   • You pay 5% GST on the freight amount.
   • But you cannot claim this GST back.
   • It becomes a cost to your business.
     
      
2. Pay 18% GST – ITC Allowed
   • You pay 18% GST on the freight bill.
   • You can claim this GST back later when filing GST returns.
   • It is not a cost, because you recover it.

Example:-

Let’s say a company pays ₹1,50,000 for international ocean freight.

If the company picks 18%, it pays more tax upfront, but it can claim ₹27,000 back. So, the real cost stays the same, and the business saves money in the long run.

Conclusion

GST on ocean freight helps make the tax system clear and the same for everyone. Businesses can choose to pay 5% without getting tax back or 18% with the option to get the tax back (Input Tax Credit).

If a business wants to save money later, it can choose 18% and claim the GST back. But if it wants to pay less now and doesn’t mind not getting it back, it can choose 5%.

GST has made ocean freight easier to manage, but businesses must pick the right option based on what suits them best.

FAQ’s

1. Is GST charged on ocean freight services?
Yes, GST is charged at either 5% without input tax credit or 18% with input tax credit on ocean freight services.

2. Can I claim input tax credit on ocean freight?
You can claim input tax credit only if you pay 18% GST. It is not allowed at the 5% rate.

3. Is GST applied to both imports and exports?
Yes, GST is applied to both, but export freight may be zero-rated if certain rules are followed.

4. What is the HSN code for ocean freight?
The HSN code for coastal and international ocean freight is 996521. For inland water transport, it is 996522.

5. Who pays GST on import ocean freight?
Usually, the importer pays GST under the reverse charge mechanism on import ocean freight.

Apply for Loans Fast and Hassle-Free

Apply Now

About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?