Finance Ministry's Big update: Pay GST on Hotel, train booking cancellations -- Check details

New Delhi: People travel all the year through Indian Railway. The demand for train tickets rises dramatically over the holiday or festive season. People frequently purchase tickets far in advance in order to guarantee a seat. However, a lot of people are compelled to cancel their tickets because of a last-minute emergency or a change in plans. Are you also one of them? Indian railway has changed the rule for ticket cancellation charges. Let's have a look at the changes made by the ministry.

As per the circular released by the Ministry of Finance on August 3, the cancellation of confirmed train tickets would now be more expensive since it would be subject to Goods and Services Tax (GST). Booking tickets is considered to be a "contract" under which the service provider (IRCTC/Indian Railways) agrees to offer services to the consumer, a circular released by the Finance Ministry's Tax Research Unit said. (Also Read: Analyst expect gold to touch Rs 49,500 per 10 grams in coming days)

According to the notification, a first-class or AC coach ticket cancellation fee will be subject to 5% GST, which is the rate assessed on the ticket. The same reasoning would apply if you had to cancel your hotel or flight reservations, in which case the cancellation fees would be subject to the same GST rate as the primary service. (Also Read: Withdraw Rs 10,000 even on zero balance, THESE bank account holders can do it)

The Ministry contends that the cancellation fee is a payment rather than a breach of the contract, necessitating payment of GST. Any such cancellation of a ticket would now be subject to a GST of 5% on the cancellation fees. "When the contract is breached by the passenger, the service provider is compensated with a small amount, collected as a cancellation charge. Since the cancellation charge is a payment, and not a breach of contract, it will attract GST," the notification read.

For instance, first-class or air-conditioned coach tickets are subject to a 5% GST, therefore cancellation fees will also be subject to GST at the same amount. 48 hours before the departure of the train, Indian Railways charges 240 for cancellation of an AC first class or AC executive class ticket. 

25% of the ticket price is levied as a cancellation fee if the confirmed ticket is canceled between 48 to 12 hours of the train's scheduled departure.