Indian Railways has decided to levy service tax on transportation of parcel traffic.

Since an abatement of 70 per cent has been permitted on freight for the taxable commodities by the Ministry of Finance, the Service Tax will be charged on 30 per centof the total freight inclusive of all charges would be calculated 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).

Thus, the total service tax implication will be 3.708 per cent on the total freight charges. Service tax will be levied for transportation of all description of parcel traffic (leased or non-leased parcel traffic) and merchandise items (for commercial use) booked as luggage with effect from 1st October 2012. Luggage traffic i.e. personal baggage belonging to the travelling passengers, (excluding merchandise items for commercial use), shall be exempted from service tax.

The list of commodities exempted from payment of service tax include relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; Defence or military equipments, postal mail or mail bags, household effects, Newspaper or magazines registered with the Registrar of Newspapers, agricultural produce and foodstuff including flours, tea, coffee, jiggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages.

The amount of service tax collected by Railways would be deposited with the Ministry of Financeas per prescribed procedure.