Service tax on railway travel!

Travelling across the country in trains has become more expensive in compliance with the Finance Bill, 2012 and notifications by the Finance Ministry. The hike in fare is owing to the imposition of service tax on railway passenger, starting October 1, 2012. This hike has been imposed in the following classes:

(i) AC First Class,

(ii) Executive Class,

(iii) AC-2 tier Class,

(iv) AC-3 tier class,

(v) AC Chair Car class,

(vi) AC Economy class and

(vii) First Class.

Despairing travellers have reason to cheer however, as the service tax is only levied on 30% of the total fare including reservation charge, development charge and superfast surcharge. This is owing to an abatement of 70% of the total fare, granted by the Finance Ministry by way of notification. The application of tax is in the following manner:

1. Service Tax of 12% will be charged on 30% of fare (equivalent to 3.6% on the total fare)
2. Education Cess of 2% on Service Tax will be added (equivalent to 0.072% on total fare) and
3. Higher Education Cess of 1% on Service Tax will also be added (equivalent to 0.036% on total fare)

Total Service Tax implication will be (1)+(2)+(3)=3.708% on the total fare.

To illustrate, imagine the total fare is Rs. 1,200. In such a case, the tax imposition will be as follows:

Service tax=3.6% * 1200= Rs. 43.2

Education cess= 2% of 43.2= Rs. 0.86

Higher education cess= 1% of 43.2= Rs. 0.43

Therefore, the total tax implication is Rs. 44.49.

In case of concessional value tickets, service tax is levied @ 3.708% of the total fare actually being paid by the passengers.

For travellers who have booked their tickets prior to October 1, 2012, no service tax will be levied. Passengers booking tickets subsequent to the aforesaid date are mandated to pay the tax at the time of issuance/booking. In case a passengers books a ticket and subsequently cancels the same, the tax paid will be refunded as well, as part of the total fare.

The amount of Service Tax collected from passengers will be deposited with the Ministry of Finance as per prescribed procedure.