First Class and AC railway passengers to pay service tax from July 1

The Railways have decided to impose service tax on First Class, AC Classes and freight rates from July 1.

With the Finance Ministry not having included the Railways in the exemption list issued on Wednesday, the Railway Board is preparing to levy a 12 per cent service tax that was proposed in the General Budget for 2012-13, but was deferred for three months till June 30.

With freight and passenger fares enjoying a 70 per cent subsidy, the impact on the increase in freight charges and fares of First Class and AC I, AC II and AC III will be 3.6 per cent.

The Union government is likely to net about Rs. 3,500 crore from this exercise annually.

The Railways had increased freight charges by about 30 per cent ahead of the presentation of the budget in March and passenger fares were increased by about 30 per cent in the Railway Budget.

Railway authorities said their options were limited because absorbing service tax against the backdrop of the Railways’ poor financial status while it was struggling for funds was not good economics.

The Railway authorities have so far failed to receive any response from the Finance Ministry to their request for yet another deferment on the imposition of the proposed service tax.

The possibility of a favourable response was not in sight, they contended, in view of the paucity of time and the expected resignation of Pranab Mukherjee as Finance Minister.

Officials said that if they didn’t receive any communication in the next few days, instructions would be issued to charge the new rates from July 1.