Imbalance in GTA Taxation Under GST: A Case for Policy Alignment

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In India’s Goods and Services Tax (GST) framework, Goods Transport Agency (GTA) services

are subject to two taxation mechanisms—Forward Charge Mechanism (FCM) and Reverse

Charge Mechanism (RCM). While this dual structure was designed to offer flexibility to

transporters and service recipients, its real-world application has led to significant disparities,

particularly in tax incidence, compliance obligations, and input tax credit (ITC) treatment.

Under FCM, the GTA is responsible for charging and remitting GST. It can choose between two

options: paying 5% GST without availing ITC or paying 12% GST with the benefit of ITC. In

this case, the GTA must handle all aspects of GST compliance, including issuing tax invoices,

maintaining records, and filing returns.

In contrast, under RCM, the service recipient bears the responsibility of paying the GST, usually

at 5%, and may claim ITC on that amount—effectively bringing the tax burden down to zero.

This is particularly attractive for large, GST-compliant businesses, as it allows them to control

compliance and reduce costs. A GTA that prefers to avoid handling GST directly can remain

under RCM, while the recipient pays the tax—2.5% each under the CGST and SGST Acts.

The result is a clear market tilt in favor of RCM. Since ITC is disallowed under the 5% FCM

option, the tax cost remains embedded in the freight cost, making it more expensive for

customers. Meanwhile, under RCM, recipients eligible for ITC face no such cost, making this

route more economically advantageous. This discourages service recipients from accepting

FCM-based transactions and weakens the negotiating position of small GTAs.

The compliance burden under FCM further compounds the issue. Small GTAs, often lacking the

administrative infrastructure for full GST compliance, struggle to meet requirements, whereas

RCM shifts this burden to larger, more capable recipients. This discrepancy not only limits

smaller transporters’ operational choices but also hampers their competitiveness.

While GTAs do have the option to adopt the 12% FCM rate to reclaim ITC, the economic trade-

off is often unattractive. The higher tax rate raises the total cost of service unless matched by

equivalent business benefits, which are rarely guaranteed. Recognizing this, the All India

Transporters Welfare Association (AITWA) has recommended reducing the 12% FCM rate to

around 7–8%, to make the option more viable and close the gap with RCM.

The government has made some efforts to address the imbalance. Clarifications have been issued

stating that GTAs paying tax at 12% under FCM are eligible for ITC, which partially levels the

field. However, structural disparities persist—especially when the concessional 5% rate

continues to offer ITC under RCM but not under FCM.

In conclusion, the dual taxation regime for GTA services, while well-intentioned, has led to

unintended market distortions. The preferential treatment of ITC under RCM, combined with

heavier compliance burdens under FCM, has skewed the landscape, especially against small and

mid-sized GTAs. To restore equilibrium and ensure fair competition, either the ITC rules must

be harmonized across both mechanisms or a unified taxation policy for GTA services must be

considered.