Indian Railways look for ways to avoid GST on Dedicated Freight Corridor Corporation payments

According to a report, Indian Railways is looking at various ways to avoid potential Goods and Services Tax (GST) on payments it makes to its dedicated freight track network, the Dedicated Freight Corridors (DFC). An 18% GST on remittances from Indian Railways to the Rs 1.24 lakh crore DFC for usage has been signaled by Tax authorities.

These payments take the form of a track access charge (TAC), currently surpassing Rs 7,000 crore annually. This amount is expected to rise with the full 2843-km DFC (Dedicated Freight Corridors) network becoming operational next financial year.

Generally, money transfers between different government entities are exempt from GST. However, the report said that the Dedicated Freight Corridor Corporation of India Limited (DFCCIL) is registered as a special purpose vehicle (SPV) under the Indian Railways, giving it the status of an independent entity that provides track services.

For management purposes, DFCCIL is categorized as a Zonal Railway. It clarifies that any revenue generated from transporting goods or passengers is credited to the Railway’s account. The Railways then outlay funds when there is a requirement for funds in a zone under various heads. Track access charge (TAC) is one such head that is now potentially facing a GST levy.

To look after of this issue, an official familiar with the matter mentioned that they might change the accounting head to mitigate the impact of the tax liability.

The funds provided by Indian Railways are the prominent source of income for Dedicated Freight Corridor Corporation of India Limited (DFCCIL), which needs to repay debt borrowed from multilateral institutions. The World Bank and Japan International Cooperation Agency (JICA) alone are owed more than Rs 52,000 crore for the freight corridors.

The Dedicated Freight Corridors or DFCs work as a revolutionary bet by Indian Railways to increase the modal share of railways in the overall freight traffic movement across the country.