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Impact of GST Rates on Rail Transport

By Annapoorna

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Updated on: Feb 26th, 2024

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5 min read

The Indian Railways is the fourth largest railway network and the eighth largest employer in the world. Thousands use the railways to travel every day; whether for short commutes to work or longer journeys between cities – since the time the first tracks were laid by the British connecting Bombay to Thane. As per 2021 data, around 22,593 trains are operating with a daily passenger count of 24 million passengers and 203.88 million tonnes of freight. 

Under Pre-GST Regime

Service tax was applicable on the transport of goods & passengers before June 2017. The railways also enjoyed a 70% abatement which means only 30% of the value was taxable under service tax. Thus, the effective rate was =30% of 15% = 4.5% of the total fare.

ParticularsUnder STUnder GST
Ticket price

1000

1000

Service tax 4.5%

45

--

GST@5%

--

50

Total payment

1045

1050

 

GST has not been exceptionally beneficial to passengers who are end consumers as the effective service rate which was 4.5% increased to 5% in GST. In fact, ticket prices increased slightly due to the slight increase in the tax rate. However, passengers travelling for business purposes can claim ITC on rail ticket prices thus helping businesses to reduce their expenses.

Let us look at an example. End consumers will find that ticket prices increase slightly under GST. However, business travellers can claim the Rs. 50 (in the example above) as input tax credit against the output GST liability.

To summarise, GST rate on train tickets are as follows-

  • 5% on total passenger fare of AC and First class only of all categories of trains.
  • GST exemption is available for the following-
    • Passengers travelling in Second class, Metro, Sleeper Class.
    • On inter-state movement of trains between stations/ workshops/ sheds/ depots, etc., for the purpose of carrying goods or passengers or both. 

Transport for Goods

The railway sector was afraid of GST hitting freight loading in a bad way. Railway freight was lagging behind road transport in spite of railway transportation not being subject to multiple stoppages at checkpoints. Businesses have always preferred to transport goods through trucks to avoid the various compliances and paperwork involved when transporting freight via railways.

Transport of goods and passengers by rail attract 5% tax under GST. Although it seems more than the current effective service tax of 4.5%, the effective GST liability will go down thanks to the mechanism of input tax credit which is available on rail transport.

This is exceptionally beneficial to the railways as there is no ITC available on transportation through Goods Transport Agencies (such as trucks). GST rate is also 5% on road transport thus making the rail freight more competitive.

Furthermore, in September 2019, the GST rates on the supplies of railway wagons and coaches is increased to 12% from earlier 5%, thereby doing away with the need to claim refund on the accumulated ITC on the inputs used in manufacturing them.The announcement is made at the 37th GST Council meeting which has been a positive move for the manufacturers in this space.

Furthermore, GST is not applicable for certain types of transportation of goods. These include-

  • Transportation by Rail of Agricultural, produce, relief materials, milk, salt, food grain including flours, pulses and rice, railway equipment and materials, defence and military equipments, etc. 
  • On services of leasing of assets (rolling stock assets including wagons, coaches, locos) by Indian Railways Finance Corporation to Indian Railways.
  • On inter-state movement of trains between stations/ workshops/ sheds/ depots, etc., for the purpose of carrying goods or passengers or both or for repairs and maintenance. 

No GST on Transportation of Certain Goods

GST is not applicable on the transport of the following goods: 

(a) Relief material for disaster struck areas (food for flood victims etc.) 

(b) Defence or military equipment 

(c) Newspaper or magazines registered with the Registrar of Newspapers 

(d) Railway equipment or materials 

(e) Agricultural produce 

(f) Milk, salt and food grain including flours, pulses and rice 

(g) Organic manure

Registered Taxable Persons Transporting Goods via Rail

Business to Business (B2B) supplies stand to gain with GST as input tax credit is available. The invoice matching concept is applicable here as well in order to claim ITC. The IRTC captures the GSTIN of all the business sending goods for transportation for which it requires changes to the IRTC software.

B2C Supplies- Unregistered Persons

GST is collected by Indian Railways and deposited with the government. IRTC maintains a consolidated summary of invoices for the freight of unregistered persons each day with details of all B2C supplies.

Summary of GST & Its Impact on Railways

ServicesSTGST
Transportation of goodsTaxable (with abatement)Taxable (No abatement)
Transportation of goodsTaxable (with abatement)Taxable
Loading and unloading of goods except related to agricultural produce, rice, cottonTaxableTaxable

Thus, we see that GST doesn't benefit end consumers greatly due to non-availability of input tax credit. However, GST benefits the logistics sector including railways by removing the need for businesses to maintain multiple warehouses across states to avoid CST levy and state entry taxes.

Transport service rate of GST at 5% will be anti-inflationary and give a much-needed boost to rail freight. Reduction in cost of transportation of goods will lead to reduced prices.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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Quick Summary

Indian Railways is the fourth largest railway network globally with tax implications on passenger and freight transportation under GST. The change from service tax to GST slightly increased ticket prices but allowed input tax credit for business travelers. With GST rates and exemptions discussed, railways benefit from competitive rail freight pricing compared to road transport.

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