RCM on air freight charges

Applicability of Reverse Charge Mechanism (RCM) on Air Freight for Import of Goods

Under the GST regime in India, the applicability of Reverse Charge Mechanism (RCM) on freight depends on the terms of the contract (FOB or CIF basis) and the type of freight (air or sea). Let's analyze both scenarios:

1. On FOB Basis (Free on Board):

• Responsibility for Freight: In FOB terms, the importer (you) is responsible for arranging and paying for the transportation of goods from the port of export to India.
• RCM Applicability on Air Freight:
  • As per Notification No. 10/2017-Integrated Tax (Rate), RCM applies on freight charges if the importer pays for the freight and the supplier of service is located outside India.
  • However, air freight for goods transported into India is exempt from GST under Notification No. 12/2017-Central Tax (Rate) (entry no. 19A and 19B). This exemption applies regardless of whether the freight is under FOB terms.

2. On CIF Basis (Cost, Insurance, Freight):

• Responsibility for Freight: In CIF terms, the seller arranges and pays for the freight and insurance up to the port of import in India. The cost is included in the value of goods for customs purposes.
• RCM Applicability on Air Freight:
  • Since the seller (exporter) bears the freight cost and includes it in the invoice, there is no direct payment of freight charges by the importer.
  • Consequently, RCM is not applicable to the importer for air freight under CIF terms.

Comparison of FOB and CIF Basis:

Key Considerations:

1. Air Freight Exemption: GST is generally not applicable on air freight for import of goods, making RCM irrelevant for air freight transactions.
2. Customs Valuation: Ensure the freight cost is correctly included in the assessable value of goods for customs duty purposes under both FOB and CIF terms.

No GST under RCM on import air freight, on either FOB or CIF terms:

• Transportation of goods by aircraft from outside India to the customs station of clearance is exempt (Notf 9/2017-IT(R), Sl. No. 19).

• Freight is part of the customs assessable value, so it is already taxed through IGST on import. Under FOB terms the actual air freight (or 20% of FOB value if not known) is added; under CIF it is already included.

• For comparison, ocean freight RCM is also gone: the SC struck down IGST on ocean freight in CIF imports (Mohit Minerals, 2022), and the RCM entry was removed from 1 October 2023.

• Check the forwarder's other charges: inland freight, handling and documentation within India by an Indian forwarder are taxable under forward charge at 18% (5%/12% for GTA as applicable). Claim ITC on these.

• TDS: no TDS on freight paid to a foreign airline (Sec 172 applies to shipping; non-resident airline income is usually protected by DTAA). Payments to an Indian freight forwarder attract Sec 194C.