Bad news for travellers: Now, GST charge on cancellation of train tickets, hotel bookings

In a piece of bad news for would-be travellers and vacationers, the Finance Ministry on August 3 issued a circular stating that the cancellation of confirmed train tickets would now be costlier, as it would attract Goods and Services Tax (GST).

As anyone who has ever travelled by train in India knows, many people often book tickets well in advance to secure a confirmed seat. However, many are forced to cancel their tickets due to a change in plan at the last minute.

The Finance Ministry’s Tax Research Unit has released 3 circulars explaining many rules, one of them is related to the cancellation charges and GST.

One of these 3 circulars explains payments levied on breach of contract including cancellation of bookings in hotels, entertainment shows and train tickets. Booking is considered a contract in which the service provider promises to offer a service.

When a customer breaches the contract or cancels the booking then the service provider earns a certain amount in the form of cancellation charge. Since cancellation charge is a payment in lieu of the breach of contract, it will have GST imposed on it.

An example of the kind of charge a customer would have to pay:

If one books a ticket in the AC first class compartment of a train, then they are liable to pay 5 percent GST. In case they go ahead and cancel that ticket, then Rs 240 fee is applicable.

In that case, they will have to pay 5 percent GST on that cancellation fee of Rs 240 as well. That means, they will have to pay Rs 12 extra on the amount they are already paying. This is the case when cancellation charges are levied.

According to the Finance Ministry's new circular, passengers will also have to pay the same amount of GST on cancellation charges. So, in case of cancellation of a confirmed AC first class ticket, a passenger must pay Rs 12 more (5 per cent of Rs 240) towards GST, thus making it a total cancellation fee of Rs 252.

No GST is applicable on other categories and second sleeper class.

The Indian Railways currently charges Rs 240 for cancellation when the ticket is cancelled 48 hours or more before the scheduled departure of the train.

If the confirmed ticket is cancelled before 48 hours to 12 hours from the scheduled departure of the train, 25 per cent of the ticket amount is charged as a cancellation fee.