Impact of GST Rates on Rail Transport

Indian rail transport is one of the largest rail networks in Asia, offering economical commuter services to people. The rail transport services have GST charges implied on it.

Before the implementation of the GST on rail freight, service tax was charged for the passenger booking or transportation of goods or commodities. However, there was an allocation of a special benefit of a 70% reduction on the total fare value. Making the remaining 30% taxable under 15% service tax resulting in 4.5% on the total fare value.

The implementation of the 5% GST rate of railway freight has led to an increase in the final ticket fare price, which is not beneficial for consumers. With the hike in the ticket fares, post-GST regime, the citizens can avail the benefit of Input Tax Credit (ITC). This can be claimed on every business trip via rail or commercial transportation of goods by rail under the GST.

Indian Railways has been efficiently operating by retaining 94% of the earnings, but the hike in tax percentage worried the authorities that it might lead to a vicious cycle. Businesses often tend to prefer road transportation, irrespective of quick and seamless freight services on the railways. Even the amount of paperwork at various checkpoints makes road transport a chaotic affair at times.

The 5% tax on the transportation of goods by rail under GST comes with an ITC claim discount for commercial goods and commodities. This gives rail transport an upper hand as you cannot claim any ITC benefits under the transportation of goods and commodities via roads. There is a 5% tax on road transport freight, with hardly any additional benefits.

The GST on rail freight is applicable to-

• Registered Taxable Persons Transporting Goods via Rail

 Businesses using rail transport to commute their goods or commodities to other businesses will have to pay a 5% GST rate on railway freight. However, they can claim the benefit of ITC. The validity of the ITC claim can be calculated using the invoice matching concept.

• B2C Supplies- Unregistered Persons

 Businesses using rail transport to commute their goods or commodities to customers or unregistered businesses will have to pay a 5% GST rate on railway freight. The tax is not eligible for an ITC claim and is directly deposited into the government reserve.

As per the GST regime, a tax rate of 5% applies to catering services in railways including ordering food online in trains or purchasing it from railway platforms. The GST is imposed on packed and unpacked fresh food and drinks, including bottled water.

The 5% GST, without input tax credit, is applicable to supply of drinks and food that is made available in trains, platforms and stations by the Indian Railways, or Indian Railways Catering and Tourism Corporation Limited, or their licensees. 

Rail freight will benefit greatly from the anti-inflationary effects of the GST transport service rate of 5%. Eliminating the requirement for companies to keep numerous warehouses across states to escape CST levies and state entry fees, however, it will help the logistics industry, including railways. Prices will decrease as the cost of delivering products is reduced.