No service tax on rail fares, freight till Sept

The proposed hike in rail fares and freight charges has been kept in abeyance as the finance ministry on Monday gave a three months breather to the railways from the payment of service tax till September 30.

According to government officials, the extension was sought by the railways so that they could put in place an accounting system for taking the benefit of CENVAT credit, allowed by the ministry on both freights and passenger fares.

The exemption follows a letter written by railway minister Mukul Roy to Prime Minister Manmohan Singh to not levy service tax on freight and fares from July 1, as applicable to all other services. Today's notification exempts the "service of transportation of passengers, with or without accompanied belongings, by railways in first class, or an air conditioned coach and services by way of transportation of goods by railways".

Earlier, Roy had sought exemption from the ex-finance minister Pranab Mukherjee as well but the demand was not considered. Passenger fares in AC-I, AC-II and first class along with the freight charges were to rise from July 1 in case the service tax was imposed. The service tax on railway passenger fare and freight was introduced in budget 2009-10. So far, despite all its efforts, the finance ministry has not been able to impose service tax on railways given the stiff opposition from the then railway minister Mamata Banerjee. The department has been giving exemption ever since.

With freight and passenger fares enjoying a 70 per cent rebate, 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.

Beginning July 1, all except 38 services in the negative list would be subject to 12 per cent tax as per the government announcement in the Budget 2012-13.

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