Introduction
Transportation is a huge part of the economy. The most popular form of goods transport in India is via road. The “Goods Transport Agency”(here-in after referred to as GTA) means any person who provides service in relation to the transport of goods by road and issues consignment note, by whatever name called.
Reverse Charge Mechanism in Goods and Transport Agency (GTA)
GTA has been included in the list of services where tax shall be paid by the recipient of service on reverse charge basis . The following recipient of GTA service is required to pay GST under reverse charge:-
- Factory registered under the Factories Act, 1948
- A society registered under the Societies Registration Act, 1860 or under any other law
- A co-operative society established under any law
- A person registered under GST.
- A body corporate established by or under any law; or
- A partnership firm whether registered or not (including AOP)
- Casual taxable person.
By virtue of Notification No. 22/2017, CGST Rate it has been clarified that in case the GTA who had opted for payment of tax liability shall be kept out of the purview of RCM liability.
Input Tax Credit
GTA has been provided with an option of availing full Input tax Credit by discharging CGST @ 6% (i.e., aggregate GST rate of 12%) . On the other hand, the GTA also has the option, not to charge any tax in his invoice raised and the recipient of such service from GTA shall be liable to pay tax @5% under reverse charge mechanism. In case of RCM, the recipient of GTA services shall be eligible to take the credit of the tax paid on reverse charge.
GST versus Service Tax
In pre GST regime, GTA were not given the option to avail input tax credit under any circumstance whereas under GST regime. GTA have been given the option of claiming full input tax credit by discharging 12% GST. Previously, GTA were not eligible to pay taxes and 100% of the taxes were paid via reverse charge mechanism. In GST regime, GTA are eligible to choose between paying taxes and take credit or such taxes being paid by the recipient of services under reverse charge.
Conclusion
Generally, the transporters are not registered nor do they pay any tax so in order to bring this sector under the tax net the Government has shifted the tax incidence to the receiver of transport service in order to collect tax. In the GST regime, in cases where GTA has discharged GST liability under forward charge, and has charged the tax at the rate of 12% in the invoice, then there is no liability under reverse charge for a business.
Thus, before executing any freight contract, the receiver of services must know whether the GTA is registered or not registered. If registered whether the GTA has opted to pay tax under forward charge or reverse charge. The recipient of services is also required to carry out the cost benefit analysis. Whether to avail the services of GTA who are registered under GST or to avail the services from those who had opted for reverse charge.
1 Notification No. 11/2017- CGST Rate,2017 dated 28/06/2017
2 Notification no. 13/2017-CGST Rate, 2017 dated 28/06/2017
3 Notification No. 20/2017- CGST Rate, 2017 dated 22/08/2017
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Twenty years of experience in tax practice. Specialist in structuring & planning and tax optimization under indirect tax. Lead eastern India indirect tax practice of Ernst & Young in past.
