Impact of GST Rates on Rail Transport

Monisha Chaudhary

04 Jun, 2024

One of the biggest rail networks in the Asian continent, Indian rail transport provides people with affordable commuting services. GST taxes are explicitly applied to rail transit services. The Indian Railways is the eighth-largest employer in the entire world and has the fourth-largest railway network. Since their establishment in 1853, railways have been essential to transportation, interconnecting people, goods, and services throughout India’s vast territory.

Indian Railway’s extensive network of more than 67,000 kilometres of tracks and 7,000 stations is the backbone of the nation’s transportation system. Over 70% of Indian Railways’ revenue comes from passenger travel, which serves thousands of people every day and offers an accessible and affordable means of transportation. All deliveries of goods and services made via the railway, including passenger tickets, transport for business purposes, and catering services, are subject to GST.

Pre-GST regime in rail transport

Before the introduction of the goods and services tax, a 15% service tax was imposed on 30% of the cost of the rail transit, and there was no other tax on the remaining 70%. Thus, when calculated as 15% of 30%, the real service tax would equal only 4.5% of the cost. Passengers who were end users will not particularly benefit from the GST implementation because it will increase the effective service rate from 4.5% to 5%. In fact, the small hike in the tax rates will also result in a slight increase in the prices of the tickets.

Impact of GST on transport of goods through railways

GST acts as an incentive for the railway sector. There is a deduction for input tax credit claims for commercial products and commodities on the 5% GST tax on rail freight. Since the businesses are not eligible for any input tax credit (ITC) advantage under the conveyance of goods or services via roadways, this gives rail transport an upper hand in this situation and acts as a merit. These GST rates have a very mixed effect on the Indian rail transport sector. On one side, the goods and services tax has streamlined the process of filing the taxes and lowered the amount of levies and the documentation work which was associated with the goods transportation services. On the other hand, the 5% GST rate on goods transport services has raised the cost of transport, which has considerably reduced the profitability of the sector.

GST on tickets for trains and services of transport

Only the entire AC and First class fare on all railway classes is subject to GST. Other classes, such as second sleeper and second class (which is reserved & unreserved), are exempt from the GST. The first class or air-conditioned coach seats would be subject to a 5% GST; thus, the GST at the same rate would apply to the revocation fees. If tickets are confirmed and cancelled between 12 and 4 hours from purchase, 50% of the booking cost will be charged. Regardless of the circumstance, 5% GST will be added to the ticket cancellation fees. There is no GST applied to the cancellation of 2nd class sleeper tickets.

GST exemptions for rail transport

Rail freight gives tax exemptions for certain types of products and commodities under the GST system. These exclusions are imposed in recognition of the numerous industries that contribute to the overall welfare of the economy.

• Using Indian railways to move products and commodities freight of staple foods, including milk, bread, salt and rice.
• Delivery of relief supplies, such as medicine and food, to disaster-affected communities or regions
• Transporting registered journals, periodicals, newspapers, etc.
• Fertilizer and other agricultural materials are transported.
• Transfer of security equipment to India’s defence and military department.
• Transport of specialists, repairmen, etc., within or within states for maintenance.
• Train or train component commutes for upkeep, maintenance, or service.

GST rates for catering services in rail transport

The GST system imposes a 5% tax on all catering services provided by the railways, including online food orders for in-train consumption and food purchases made at railway platforms. Bottled water and other fresh foods and beverages, both packed and unpacked, are subject to the GST. The 5% GST, without an input tax credit, is applied to the sale of beverages and food by the Indian Railways, the Indian Railways Catering ¹ and Tourism Corporation Limited, or its licensees inside of trains, platforms, and stations.

Input tax credit in rail transport

The credit for taxes spent on inputs utilized in the manufacturing process that businesses receive is known as an input tax credit. With the ability to claim ITC on rail ticket costs, passengers travelling on business can now assist businesses in cutting costs. Businesses using rail transport to deliver their products to other entities must pay 5% GST on rail freight. They are permitted to use the ITC benefit. Using the notion of invoice matching, it is possible to determine whether an ITC claim is valid.

Conclusion

Since all commercial transportation undertaken over this route is entitled to input credit, GST significantly impacts the conveyance industry. This will save transportation costs and result in lower final product costs. Additionally, it lessens the need for business entities to build separate warehouses in each state where they manufacture their goods. Due to the absence of input tax credits, the GST won’t significantly help end users. The GST has now been implemented by Indian Railways in the two-wheeler and four-wheeler parking areas at railway stations across the nation.

Frequently Asked Questions

1. https://cr.indianrailways.gov.in/view_section.jsp?fontColor=black&backgroundColor=LIGHTSTEELBLUE&lang=0&id=0,6,287,384,809