Dedicated Freight Corridor likely exempt from 18% GST, boosting Indian Railways revenue model

India’s Dedicated Freight Corridor, a special-purpose vehicle of the Indian Railways, is likely to be exempted from the purview of an 18 per cent GST, thereby eliminating the need to work out a new revenue model or change in freight rates.

The tax obligation was reportedly on track access charges – remittances paid for accessing the rail network – which are a fixed cost of the Dedicated Freight Corridor Corporation of India Ltd (DFCCIL).

Estimated remittances under this head was ₹5,000 crore, which could have gone up subsequently as more tracks of the corridor became operational, sources said.

On Friday (July 12), the indirect taxes board, CBIC, notified the Goods and Services Tax ( GST ) exemption on services provided by the Indian Railways to the public and the services provided by Special Purpose Vehicles ( SPVs ) to the Railways. The exemption shall come into force from July 15, 2024, onwards.

“Services provided by SPVs to Indian Railways - by allowing Indian Railways to use the infrastructure built and owned by them during the concession period against consideration- and services of maintenance supplied by Indian Railways to SPVs in relation to the said infrastructure built by the SPVs during the concession period against consideration, is said to be exempt from purview of GST, it was decided at a recent council meeting,” a part of the notification read.

“A simple interpretation of this would mean track access charges – which are received as remittances from the Railways would be exempt from GST. So there need not be a requirement to categorise such a charge under a separate head (for accounting purposes) or hike freight rates for users of the corridor,” a Railway official told businessline, requesting anonymity.

The GST hitch

Typically, money transfers or remittances between government entities or departments are exempt from GST. But, the DFCCIL is categorised as an SPV, which basically means it’s a separate entity that provides track services.

The Railways, however, categorise DFCCIL as a zone. So, revenue generated from it is credited to the Railways. Subsequently, funds are remitted. DFCCIL has fixed and variable costs. The track access charges comprise operations and maintenance costs, interest paid, land lease costs, employee costs, and other overheads. Most of these are dynamic.

Sources said, DFCCIL works on the reimbursement model which is paid to it by the Indian Railways, primarily in the form of track access charges. Incidentally, the DFCCIL has been supported -by way of loans - from multilateral agencies like the Japan International Co-operating Agency (JICA).