The withdrawal of exemption on export freight has affected exporters and transporters severely. In this article, we will discuss the new change that has been implemented, how much air freight and ocean freight is now applicable, the ITC issues and also the history of this exemption.
Exemption on Export Freight Update
The CBIC had previously approved an exemption from GST on air and ocean export freight until September 30, 2022. However, the exemption has now expired. It was valid through September 30, 2018, but was later relaxed until September 30, 2022.
In India, air freight is subject to an 18% GST, ocean freight is subject to a 5% GST. Starting on October 1, 2022, exporters will have to pay GST on the previously exempted two services.
How does the Withdrawal Exemption on Export Freight Affect Businesses
The removal of the exemption affects transporters and exporters majorly. However, it also puts financial strain on MSME exporters. Henceforth, the airline, shipping, and freight forwarding industries will all suffer as a result of the heavy freight tax as it increases their overall cost of exporting and doing business.
Taxpayers may have issues availing ITC on the GST paid to the Indian Shipping Company or Airline Company on freight amount for the export of goods and thus would be a cost to the exporter which will affect the working capital.
The Central Board of Indirect Taxes and Customs (CBIC) previously exempted services for transporting commodities by ship or aircraft from a customs station of clearance in India to a location outside India via Integrated Tax (rate) Notification No. 2/2018, dated January 25, 2018.
The exception was announced with a sunset provision and was valid until September 30, 2018.
This exemption was extended several times later via GST Notification no. 15/2018 (Rate), Notification No. 09/2017 (Rate), Notification No. 20/2019 (Rate) and was applicable till 30th September 2022.
Note the details:
- Export freight, when both supplier and recipient of transportation services were in India, was exempt.
- Exemption Notification 2/2018 dated 25th Jan 2018- IGST(Rate) provided exemption to both Air freight and Ocean Freight in Serial No 20A and 20B of the Notification.
- Services by way of transportation of goods by an Aircraft or vessel from a customs station of clearance in India to a place outside India was exempt up to 30th Sept 2018 by this notification.
- Exemption continued up to September 2022 by virtue of notifications issued from time to time.
- With effect from 1 st Feb 2019, a proviso was inserted to Section 12(8) of IGST Act to state that even when the supplier as well as the recipient of transportation service, is in India, the “place of supply” would be outside India if the destination of goods is outside India.
- Notification which granted exemption to Export freight up to Sept 2022, was not extended.
Best software to reconcile GST data faster and ensure 100% compliance – IRIS GST Software
As a registered taxpayer, reconciling your purchase invoices with the supplier-uploaded invoices on the GST system is a critical activity as it determines your ITC claim. Further, the Government issues legal notices to taxpayers for discrepancies in the ITC claimed in GSTR 3B and the amount as per supplier uploaded details. Our Smart Reconciliation comes in handy for managing reconciliation tasks in a timely, efficient and easy manner.
Bulk Data upload facility – It will help you to upload data for multiple GSTINs in one go
2P Summary – Provides a summary of uploaded data. You can quickly check your uploaded data with the count of invoices getting considered for reconciliation
Bulk download of GSTR 2A – For multiple periods, you can send ’Get GSTR 2A data’ request in one go
Smart reconciliation – It auto-runs on your data and provides you the reconciliation results with summary
Advanced reconciliation – It helps you to extend the scope of comparison between data that is in the supplier-only and purchaser-only category. Some rules that help in better reconciliation are :
- Checking invoices across the financial years
- Fuzzy invoice no. logic
- Checking exact values ignoring invoice number
- Checking invoices within the tolerance provided by you
Monthly reconciliation results with monthly GSTR 2A report – Helps you to decide monthly ITC and how much you can claim as provisional ITC
Net vendor summary – It gives you a glance reconciliation status for each vendor
PAN level reports and GSTIN level reports – It will help you to analyse in detail of your purchaser-only and supplier-only invoices Send Mail – By using this feature you can easily communicate discrepancies to your vendor