Rail freight rates to go up by nearly 4 per cent from 1 October

Rail freight charges will go up by 3.708 per cent with the levy of service tax on all goods transported by rail beginning 1 October. The service tax impost, which was kept in abeyance till 30 September 2012, would now be levied from 1 October, an official release said today.

The finance ministry, however, has permitted an abatement of 70 per cent on freight for taxable commodities and the service tax will actually be charged on 30 per cent of the total chargeable freight, inclusive of all charges (like busy season charges, development charge etc).

The cess would be as follows:

• Service tax of 12 per cent will be charged on 30 per cent of freight (equivalent to 3.6 per cent on the total freight charges);
  
• Education cess of 2 per cent on service tax will be added (equivalent to 0.072 per cent on total freight); and
  
• Higher education cess of 1 per cent on service tax will also be added (equivalent to 0.036 per cent on total freight).

The service tax implication on total freight rate would be 3.708 per cent.

The finance ministry has, meanwhile, exempted certain essential commodities from payment of service tax. The list of such commodities and further details on the modalities of levy and collection of service tax on transportation of goods by rail, may be ascertained from the Railways, the release added.

The service tax impost on freight charges is in compliance with the provisions of the Finance Bill and the amount of tax thus collected by the Railways will go to the finance ministry.