The Indian Railways is worried that the tax treatment of work contracts in the goods and services tax (GST) regime would inflate its cost of expansion, as the contractors threaten the additional tax liability on them will reflect in contract values. With the transporter’s output tax liability limited — it pays service tax on passenger fares of about Rs5,000 crore annually —, it hasn’t got sufficient avenues for set-off of input taxes. The tax rate for work contracts in the GST regime will be 18%, compared with an effective rate of 4% (state VAT) now.

Source - http://www.financialexpress.com