The new service tax of 3.708 per cent, as per the government notification, will be levied on AC First Class, Executive Class, AC-2 tier, AC-3 tier, AC Chair Car and
Passengers travelling in AC-2 and AC-1 will be additionally burdened by the service tax as the fares of these classes were already hiked by about 20 per cent in April as
part of the proposals of the Rail Budget 2012-13.
"No service tax will be levied on tickets bought before October 1. In case of ticket cancellation, the service tax component will be returned to passengers," a senior Railway Ministry official said.
Besides, service tax will also be levied on auxiliary service such as catering and parking at stations.
The government exchequer is expected to earn about Rs 3,000 crore from the service tax decision coming into force from tomorrow.
Service tax, which would also be imposed on rail freight from tomorrow, will exempt petroleum products, foodgrains, pulses, fruits and vegetables and other essential items from its purview.
According to Railways, the service tax is 12.36 per cent but after the adjustment of 70 per cent, it will effectively be 3.708 per cent on passenger fares in AC classes and freight services.
However, auxiliary services rendered at stations like catering and parking will have to bear the burden of 12.36 per cent hike as there will be no adjustment on these services.
The decision comes within a week of Trinamool Congress, which was holding railway portfolio, exiting from the UPA government. TMC had been consistently opposing the service tax being levied on these services.
Passengers travelling in AC classes were brought under service tax from July this year as per the Finance Bill 2012 but the levy had been kept on the back-burner due to opposition from Trinamool Congress.
The service tax decision was taken after a meeting between Railway Minister C P Joshi and Finance Minister P Chidambaram here.
On concessional tickets, service charges will be 30 per cent of the total fare.
Service tax on freight was announced in the 2009-10 Union Budget but the then Railway Minister Mamata Banerjee had protested the move.
Freight services had also witnessed a hike of 20 per cent to 30 per cent this year in March before the budget.
Insiders in Railway Ministry say the imposition of service tax is a pointer of the reformative measures that the government plans to initiate to strengthen the financial
health of the national transporter and revitalise it.
The ministry has now come to Congress after 16 years.