However, I believe that the policy adopted by IR for Premium Trains is not good and Railway shall refund atleast 50% of the Fare in such case or a Flat Amount higher than normal charges. The pricing model was adopted in-line with Airlines and Airlines too allow cancellation with a huge cancellation fee (However we still get some money back).
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This would help other passengers to get reserved accommodation in case of Cancellations.
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But I believe this has to be done without any reasons attached (like Death, Illness as you mentioned).
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If IR is following a policy (whether justifiable or not, acceptable or not) I would not like to change it for personal problems of Consumers.
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The point here is that if it is not justifiable than it should go outright. With so much rush nowadays, the reason that IR would not get Pax for Cancelled Berths is unimaginable.