Understanding GST's Impact on India's Rail Transportation Sector

India boasts the world's fourth-largest railway network and is the eighth-largest employer globally. Millions of individuals rely on the railways daily for commuting and long-distance travel, a practice that dates back to the British era. As of 2021 data, approximately 22,593 trains operate, transporting around 24 million passengers and 203.88 million tonnes of freight daily.

Taxation Under the Pre-GST System

Before June 2017, a service tax was applied to goods and passenger transport via railways. The railway services benefited from a 70% abatement, meaning only 30% of the total value was subject to service tax. This resulted in an effective tax rate of 4.5% (30% of 15%) on the total fare.

Here’s a comparison of ticket prices before and after GST:

GST has not significantly benefited ordinary passengers who are the end consumers, as the effective service tax rate rose from 4.5% to 5%. This led to a slight increase in ticket prices. However, passengers traveling for business can claim Input Tax Credit (ITC) on their rail tickets, which helps businesses reduce their overall expenses. For instance, business travelers can claim the Rs. 50 (from the example above) as ITC against their output GST liability.

In summary, the GST rates for train tickets are as follows:

• A 5% GST is levied on the total passenger fare for AC and First Class tickets across all train categories.
• GST exemption is applicable for:
  • Passengers traveling in Second Class, Metro, and Sleeper Class.
  • Inter-state movement of trains between stations, workshops, sheds, or depots for the purpose of transporting goods, passengers, or both.

Goods Transportation via Rail

Initially, the railway sector expressed concerns that GST would negatively impact freight loading. Despite railways offering advantages like fewer stoppages compared to road transport, businesses traditionally preferred trucks due to simpler compliance and reduced paperwork associated with rail freight.

Currently, both goods and passenger transport by rail are subject to a 5% GST. While this rate appears higher than the previous effective service tax of 4.5%, the actual GST liability for railways is expected to decrease due to the availability of Input Tax Credit (ITC) on rail transport services.

This ITC benefit provides a significant advantage for railways, especially since no ITC is available for goods transported through Goods Transport Agencies (like trucks). With road transport also attracting a 5% GST rate, rail freight becomes more competitive.

Furthermore, in September 2019, the GST rate on railway wagons and coaches was increased from 5% to 12%. This change, announced at the 37th GST Council meeting, was a positive development for manufacturers, eliminating the need to claim refunds for accumulated ITC on inputs used in production.

Additionally, certain types of goods transportation are exempt from GST, as detailed in the next section.

GST Exemptions for Specific Goods Transportation

GST is not applicable to the transportation of the following goods:

• Relief materials for areas affected by disasters (e.g., 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 flours, pulses, and rice.
• Organic manure.

GST Implications for Registered Taxable Persons Transporting Goods

Business-to-Business (B2B) transactions benefit from GST due to the availability of Input Tax Credit. The invoice matching concept is crucial for claiming ITC. The Indian Railway Catering and Tourism Corporation (IRCTC) system requires modifications to capture the GSTIN of all businesses sending goods for transportation.

B2C Supplies Involving Unregistered Individuals

For Business-to-Consumer (B2C) supplies, where goods are transported for unregistered persons, the Indian Railways collects GST and remits it to the government. IRCTC maintains a daily consolidated summary of invoices for freight services provided to unregistered individuals, detailing all B2C supplies.

Summary of GST's Impact on Railway Services

Here’s a summary of how GST affects railway services compared to the previous service tax regime:

Ultimately, GST does not offer substantial benefits to end consumers due to the absence of input tax credit for them. However, GST positively impacts the logistics sector, including railways, by eliminating the need for businesses to operate multiple warehouses across states to avoid CST and state entry taxes.

The 5% GST rate on transport services is considered anti-inflationary and is expected to significantly boost rail freight. A reduction in goods transportation costs will consequently lead to lower prices for consumers.