The Impact of GST on Rail Tickets: Navigating the Changes
The Indian Railways, the fourth largest railway network and the eighth largest employer in the world, has faced significant changes with the introduction of Goods and Services Tax (GST). This article explores the implications of GST on rail tickets, focusing on how it affects passengers and the logistics sector.
Current Regime and Service Tax
Currently, there is a service tax of 15% applicable on the transport of goods and passengers through the Indian Railways. Interestingly, the railways enjoy a 70% abatement, meaning only 30% of the value is taxable under service tax. Consequently, the effective service tax rate stands at 4.5% of the total fare. This has acted as a buffer for passengers and businesses alike.
Introduction of GST
The Goods and Services Tax, introduced on May 19, 2017, has brought a new chapter to the financial landscape of the Indian Railways. Under the new tax regime, the GST rate on rail transport is capped at 5%. This adjustment has raised some concerns, especially among end consumers and businesses.
Impact on Passengers: End Consumers
For end consumers, who are the final purchasers of rail tickets, the transition to GST is not exceptionally beneficial. The effective service tax rate of 4.5% will now increase to 5%, leading to a slight increase in ticket prices. This is due to the slight increase in the tax rate. However, the transition also brings some advantages. Business travellers can now claim Input Tax Credit (ITC) on rail ticket prices, potentially helping businesses to reduce their expenses.
Case Study: Comparing Tax Benefits
Let's consider a case study to illustrate the difference. If a business traveller spends Rs. 500 on a rail ticket, the current service tax of 4.5% translates to a tax of Rs. 22.5. Under the new GST regime, the tax would be Rs. 25. However, the business traveller can claim Rs. 25 as ITC against the output GST liability, effectively reducing the burden.
Impact on Freight Transport: Businesses and Logistics
The railway sector was initially apprehensive about the potential negative impact of GST on freight. Despite the lack of multiple stoppages and checkpoints, businesses tend to prefer road transportation for goods due to the reduced paperwork and compliance requirements. However, the GST rate on freight is now 5%, which seems higher than the current effective service tax of 4.5%. Despite this, the availability of ITC on rail transport significantly reduces the overall GST liability.
This change is particularly beneficial for the railways, as there is no ITC available on transportation via Goods Transport Agencies (GTAs), such as trucks. Additionally, GST on road transport is also 5%, making rail freight more competitive in terms of cost. This move addresses the concerns of the logistics sector by eliminating the need for businesses to maintain multiple warehouses across states to avoid CST levy and state entry taxes.
No GST on Certain Goods: Relief During Disasters
It's important to note that certain goods, such as relief material during disasters, food for flood victims, defence or military equipment, newspapers or magazines registered with the Registrar of Newspapers, railway equipment or materials, agricultural produce, milk, salt, and food grains including pulses, flours, and rice, are not subject to service tax under the new regime.
Impact on Business to Business (B2B) and Business to Consumer (B2C) Supplies
For B2B supplies, the availability of input tax credit (ITC) is a significant benefit. The invoice matching concept will be applied to claim ITC. For B2C supplies, unregistered persons will have GST collected by Indian Railways and deposited with the government. The Indian Railways Tax Calculation (ITRC) software will need changes to maintain a consolidated summary of invoices for the freight of unregistered persons each day, with details of all B2C supplies.
Conclusion
In summary, while GST may not significantly benefit end consumers, it is expected to have a positive impact on the logistics sector, including the Indian Railways. The reduction in transportation costs due to the availability of ITC is anticipated to boost rail freight and reduce the overall cost of goods transportation.