Goods & Services Tax (GST) is a ‘’comprehensive, multi-stage, destination-based tax that will be levied on every value addition.’’ The GST was launched on the 1st July 2017, and just like all other public and private sectors, Indian Railways will also be impacted by this tax. Previously, service tax was applied on the transport of goods and passengers. Only 30 percent of the value was taxable under service tax, which means the railways enjoyed a 70 percent abatement. Therefore, the effective rate was 30 percent of 15 percent, which means that passengers paid a service tax of 4.5 percent of the total fare.
GST, in reality, will not be very advantageous for passengers, because the service tax (4.5 percent) will now increase to (5 percent) under GST. There will be a 0.5 percent increase in the price of rail tickets, effective from July 1.
For example – Previously, if the ticket price was INR 1000, with the addition of a Service Tax (4.5 percent) – the ticket fare amounted to INR 1045. Now, if the ticket price is INR 1000, with the addition of GST (5 percent) – the ticket fare would amount to INR 1050.
This will lead to a slight increase in rail fares due to non-availability of input tax credit. However, business travelers will be benefited by this as they can claim INR 50 (in the example above) as input tax credit against the output GST liability.