Impact of GST on Railways

By Registrationwala

26th May 2017


Indian Railways is one of the biggest frameworks around the world. It is additionally one of the not very many railroad frameworks around the world producing working surpluses. With a modest beginning in India on April 16, 1853, when the first wheels rolled on rails from Bombay to Thane, the Indian Railways has emerged today as the main vehicle for socio- economic development of the country.

Rail transportation has a number of favourable characteristics as compared to road transportation. It is six times more energy-efficient than road and four times more economical. The social costs in terms of environment damage or degradation are significantly lower in rail. Rail development expenses are roughly six times lower than roads for practically identical levels of movement. It is the only major transport mode capable of using any form of primary energy.

The Indian Railways adds to India's financial advancement, representing around one for every penny of the GNP and the foundation of cargo needs of the center area. It accounts for 6% of the total employment in the organized sector directly and an additional 2.5 % indirectly through its dependent organizations. It has invested significantly in health, education, housing and sanitation. With its vast network of schools and investment in training, the Indian Railways plays an important role in human resource development. The Indian Railways, with about 63,000 course kilometres satisfies the nation's vehicle needs, especially, in regard of long-separation traveller and products activity. Freight trains carry nearly 1.2 million tonnes of originating goods and 7,500 passenger trains carry nearly 12 million passengers every day.

Opportunities and challenge for railway sector:


Indian Railway being a body of Central Government is engaged in providing transportation services to the general public in India, therefore, activities of transportation by Indian railway shall be deemed to be a business or commerce. Further, Indian railway owns and/ or is maintaining and/ or operating hospitals, schools for children of employees and other ventures for the benefits and welfare of its manpower. Accordingly, all the activities like transportation service including hospitals, schools and other venture will also be covered in the scope of business, irrespective of pecuniary benefit.


Indian Railway is required to get registration in the State from where it makes the supply. There is no concept of Centralized registration under GST regime as it is available under the present service tax. Therefore, State wise registrations needs to be taken. Therefore each and every railway station from where the services through trains are provided needs to be registered under GST law and their production units too.

Taxable Event

Supply Under service tax law, rendering of service is a taxable event for levy of Service Tax. In case of central excise, manufacture and place of removal determines the tax ability. ‘Supply’ is to be considered as a taxable event under GST. Supply shall include:

  • All types of supply of goods and additionally benefits made or consented to be made for a thought by a man in the course or facilitation of business,
  • Importation of service for a consideration, and
  • Services have been specified in schedule I, which shall be considered as a supply even if made without consideration.

Accordingly, transportation services, facilities in hospitals and other activities relating to welfare of manpower, importation of services for consideration, long term leases meant for development of infrastructure, all projects being executed by Indian Railways through PPP/ JV and cleaning at Railways Stations, Railways tracks etc. shall be covered under the ambit of GST.

Composite Supply:

Indian railway has been providing transportation of freight services, therefore, in the case where goods are packed and transported with insurance then, the supply of goods, packing materials, transport and insurance etc. may be considered as a composite supply and taxable in GST law.

Mixed Supply:

Where two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. For example, in a train like ‘Duranto’ passengers are transported for a consideration and food and bad roll are supplied for a price which can be booked with the journey ticket. The combined price would constitute a mixed supply and taxable in GST law.

Stock Transfer

Stock transfer to be subject to GST Transfer of inputs/ capital equipment from one unit to another is quite common in Indian railway. Due to this, units operating from various locations in different States would be required pay to GST on stock/ assets transfers from its premises in one State to its premises in another State.


A tax invoice shall include a ticket for the supply of services. Suitable changes need to be made in respect of discount/concession given to specified categories of persons and goods transportation so that such relief shall not become part of the transaction value for the purpose of GST. It may be noted that the ticket should contain prescribed information such as: name, address, GSTIN of the supplier date of its issue name, address, and GSTIN / Unique ID Number, if registered, of the recipient etc.

Rate of Tax

Currently, under service tax, Indian railway has been paying service tax on the abated value of services. Presently following Abatement there like is Transport of goods by Rail: 30%, Transport of passengers by Rail: 40%. Under GST law, four-tier rate structures, i.e. 0%,5%, 12%, 18% and 28%. However, no abatements have been prescribed yet. Therefore, prima facie, it appears that Indian railway would need to pay GST at the rate as may be prescribed for the transportation of goods and/ or services.

Works Contracts:

A significant part of railways capital expenditure is through works contracts. As per GST law, activities of works contract are specifically classified as the supply of services. It is expected that services may be taxed @18% or lower rate.


Impact of GST on Railways