Supply of Services by Goods Transport Agency (GTA)
Services covered :- Supply of services by goods transport agency (GTA) in respect of transportation of goods by road.
Supplier :- GTA (who has not paid tax at the rate of 12%) (through notification no 22/2017-CTR dated 22/08/2017). However, this provision was further amended by notification no 05/2022-CTR dated 13th July 2022. As per the amended provision, the words " who has not paid tax at the rate of 12%" are omitted and a proviso is inserted stating that the GTA shall have the option to either pay GST under forward charge or under reverse charge. The GTA needs to make declaration on the invoice as per Annexure III. Further it needs to file declaration as per Annexure V every year if it wishes to pay tax under forward charge. In case the GTA does not file this declaration then it will be covered under reverse charge for the supplier supplies made to specified persons.
Recipient :- Specified person. Following persons are covered in the list of specified persons
Any factory registered under or governed by the Factories Act, 1948 (63 of 1948); or
any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or
any co- operative society established by or under any law; or
any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or Tax Act or the Union Territory Goods and Services Tax Act; or
any body corporate established, by or under any law; or
any partnership firm whether registered or not under any law including association of persons; or
any casual taxable person; located in the taxable territory
Exceptions :- It is provided in the notification that if a department of government or local authority or government agencies who has taken registration merely for the purpose of deduction of TDS under section 51 and does not make any taxable supplies then to them this RCM provision is not applicable. (This exception is inserted vide notification no 29/2018-CTR dated 31st December 2018)
Understanding the Meaning of GTA :-
The term "Goods Transport Agency (GTA)" is defined under Clause (ze) of Notification No. 12/2017-Central Tax (Rate). As per this definition, a GTA is any person who provides services in relation to the transportation of goods by road and issues a consignment note, regardless of the name it is called by.
A key aspect of this definition is the use of the phrase "in relation to," which means that not only the transportation service but also ancillary services such as packaging, loading, unloading, and warehousing provided as part of the transportation service are covered under GTA. However, the most crucial test to determine whether a transporter qualifies as a GTA is the issuance of a consignment note.
If a transporter provides goods transportation services by road without issuing a consignment note, they do not qualify as a GTA under GST law. This distinction is important because the taxability of services varies based on whether or not the service provider falls under the definition of GTA.
Taxability of Transport Services by Non-GTA :-
If a person provides transportation services without issuing a consignment note, the service does not qualify as GTA service. In such cases, the taxability of the service is determined by an exemption entry in Notification No. 12/2017-Central Tax (Rate), which states that :-
"The service of transportation of goods by road is exempt from GST, except when provided by a Goods Transport Agency (GTA) or a courier agency."
This means that transportation services provided by non-GTAs (i.e., transporters who do not issue consignment notes) are exempt from GST, and no tax is required to be paid on such services.
Meaning of Consignment Note :-
The term "consignment note" is not defined under the GST Act. However, as per Rule 4B of the Service Tax Rules (applicable before GST), a consignment note is a document issued by a GTA that contains the following details :-
Serial number of the document
Name of the consignor and consignee
Registration number of the goods vehicle used for transportation
Details of the goods being transported
Place of origin and destination of the goods
Person liable to pay GST (consignor, consignee, or GTA)
Since the issuance of a consignment note is a defining feature of a GTA, any transporter who does not issue a consignment note will not be classified as a GTA, and their services will generally be exempt from GST under the above-mentioned notification.
Exemptions Available to GTA Services :-
Notification No. 12/2017-Central Tax (Rate) also provides exemptions for certain transportation services provided by GTA. As per this notification, GTA services are exempt from GST when they involve the transportation of the following :-
Agricultural produce
Goods transported in a single carriage where the freight does not exceed Rs. 1,500
Goods transported for a single consignee where the freight does not exceed Rs. 750
Milk, salt, and food grains (including flour, pulses, and rice)
Organic manure
Newspapers and magazines registered with the Registrar of Newspapers
Relief materials for victims of disasters, calamities, accidents, or mishaps
Defence or military equipment
If a GTA provides transportation services for any of the above goods, such services are exempt from GST.
Exemption for Services Provided to GTA :-
Apart from the exemptions for services provided by GTA, certain services provided to GTA are also exempt from GST. As per Entry No. 22 of Notification No. 12/2017-Central Tax (Rate), the service of giving vehicles (e.g., trucks) on hire to a GTA is exempt from GST.
For example, if a truck owner leases their vehicle to a GTA and charges a hire fee, no GST is required to be paid on such hire charges. This exemption ensures that GTA businesses are not unnecessarily burdened with additional tax on their operational costs.
Impact of RCM on Small Businesses :-
One important consequence of the RCM mechanism is that if a recipient is required to pay GST under RCM, they must compulsorily register under GST, even if their turnover is below the registration threshold of Rs. 20 lakh (Rs. 10 lakh for special category states).
For example, suppose a new partnership firm with an aggregate turnover of only Rs. 10,000 avails GTA services and is charged freight of Rs. 2,000. Since the partnership firm is a specified person under RCM, it is required to register under GST and pay GST on the freight amount, even though its turnover is below the normal registration limit. However, if the freight is only Rs. 670, the service falls under the Rs. 750 exemption limit, and hence no GST is payable, meaning the firm is not required to take registration.
Special Provision for Government Entities Registered Under Section 51 (TDS Deduction) :-
Under Section 51 of the CGST Act, certain government departments and local authorities are required to take GST registration solely for the purpose of TDS deduction. These entities do not conduct business activities and are not normally liable to pay GST on purchases.
Earlier, such government departments and local authorities were considered "specified persons" under RCM and were required to pay GST on freight charges paid to GTA, even if they were registered only for TDS purposes. To remove this unnecessary burden, Notification No. 29/2018 amended the RCM entry to state that government entities registered under Section 51 for TDS deduction are not liable to pay GST under RCM for GTA services.
This amendment ensures that government departments registered only for TDS deduction do not become liable for unnecessary tax payments under RCM.
GST Rates for Goods Transport Agency (GTA) Services and Their Implications
Under GST, services provided by a Goods Transport Agency (GTA) are subject to two optional tax rates: 5% (without ITC) and 12% (with ITC). The choice of rate depends on whether the GTA wants to avail Input Tax Credit (ITC) on the GST paid on its inputs and input services.
Selection of GST Rate by GTA :-
If a GTA opts for 12% GST, it is eligible to claim ITC on the tax paid on its purchases (such as trucks, fuel, maintenance, etc.).
If a GTA opts for 5% GST, it cannot avail ITC on its input tax paid.
This option is exclusively available to the GTA service provider, and it must decide whether to avail ITC at 12% or forego ITC at 5%.
For example, consider a GTA that purchases a truck for Rs. 20,00,000 plus Rs. 3,60,000 GST (18%).
If the GTA opts for 12% GST on outward supplies, it can claim ITC of Rs. 3,60,000 paid on the truck purchase. The GTA will charge 12% GST on its freight services and offset the ITC against its GST liability.
If the GTA opts for 5% GST on outward supplies, it cannot claim ITC of Rs. 3,60,000. The GTA will charge 5% GST on freight services, but will have to bear the input tax cost as an expense.
Thus, GTAs choosing the 12% rate can take benefit of ITC, while those choosing the 5% rate operate on a lower GST rate but cannot take input tax credit.
Timeline for Exercising the Option by GTA :-
As per Notification No. 03/2022-Central Tax (Rate) dated 13th July 2022, a GTA must exercise its option to pay tax under Forward Charge (5% or 12%) for a financial year by filing a declaration in Form Annexure V on or before 15th March of the preceding financial year.
If a GTA wants to charge GST under Forward Charge in FY 2024-2025, it must submit Annexure V before 15th March 2024.
If the GTA fails to submit this declaration, it will be automatically considered under Reverse Charge Mechanism (RCM), where the recipient pays GST at 5%.
Once the GTA opts for Forward Charge, it must continue with the chosen option for the entire financial year and cannot change it mid-year.
Option for Reverse Charge Mechanism (RCM) in Case of Specified Recipients :-
A GTA has the flexibility to decide whether to charge GST under Forward Charge or let the recipient pay GST under Reverse Charge Mechanism (RCM) in the case of supplies to specified persons.
If GTA provides services to specified persons (such as companies, registered firms, and government entities), it can choose not to collect GST itself and instead allow the recipient to pay GST under RCM at 5%.Further the GTA needs to make declaration on each invoice as under,
“I/we have taken registration under CGST Act, 2017 and have exercised the option to pay tax on services of GTA in relation to transportation of goods supplied by us during the financial year under forwards charge.”
How is the Choice Reflected in Invoicing ? :-
If GTA chooses to pay GST under Forward Charge :-
GTA issues a tax invoice, showing GST separately at 5% (without ITC) or 12% (with ITC).
In this case, the recipient does not pay GST under RCM as GTA is collecting and paying it.
If GTA chooses RCM for a specified recipient :-
GTA issues a Bill of Supply instead of a tax invoice, with the statement "GST shall be paid by the recipient under Reverse Charge."
The recipient pays 5% GST under RCM and deposits it with the government.
If the recipient is eligible, it can claim ITC on the GST paid under RCM.