Title - PM defers service tax on rail fare, freight

New Delhi: Bowing to the demand by the Railway Ministry, Prime Minister Manmohan Singh, who is now looking after the Finance portfolio, has decided to postpone the introduction of service tax on fare and freight traffic.

Prime Minister’s Office (PMO) sources told Zee News on Monday that Prime Minister has decided to defer introduction of service tax on passenger from July 1 by three months.

Last week, Railway Minister Mukul Roy had written to Prime Minister Manmohan Singh over the issue.

Roy said "the railways are not a profit-making body and never before the service tax was levied on railways".

He pointed out that service tax would lead to a hike in passenger fares in AC-I, AC-II and first class and freight charges.

The hike would put an additional burden on travellers of AC classes. Fares in AC-I and AC-II were increased by about 20 percent in this year's rail budget.

Service tax on passenger travel and freight was introduced in the general budget for 2009-10 but was kept on hold due to the then Railway Minister Mamata Banerjee's opposition.

The exemption has been extended since then on quarterly basis but this time the Finance Ministry had decided to exclude freight charges and AC rail travel from the negative list which gets service tax exemption.

With freight and passenger fares enjoying a 70 percent subsidy, the impact on the increase in freight charges and fares of First Class and AC-I, AC-II and AC-III could be 3.6 per cent in case service tax is imposed.