New Delhi: Passenger fares and freight charges will not go up immediately as the Finance Ministry Monday issued a notification exempting the railways from 12 percent service tax for three months till September 30.
"Government has exempted the core services provided by the Indian Railways, namely transportation of goods and passengers, from the levy of service tax. The exemption will remain effective for a period of 3 months, up to September 30, 2012," said a finance ministry statement.
Last week, Railway Minister Mukul Roy had written to Prime Minister Manmohan Singh, who is now looking after the Finance portfolio, requesting him not to introduce service tax on passenger fare and freight traffic from July 1.
The Finance Ministry has moved to a new regime of Service Tax based on negative list from July 1, under which only 38 services are exempted from payment of the levy.
Service tax on railway passenger travel and freight was introduced in the Budget for 2009-10 but was kept on hold due to the then Railway Minister Mamata Banerjee's opposition. The exemption has been extended since then on quarterly basis.
Earlier, Roy had also requested former Finance Minister Pranab Mukherjee to exempt Railways from paying service tax.
Had the government imposed 12 percent service tax on railways, passenger fares in all AC classes and first class would have gone up by 3.6 percent.
As per the estimates, railways would have to bear a burden of Rs 6,000 crore had it decided against passing on the service tax burden on the passengers.
The introduction of new Service Tax regime, based on negative list from July 1, would bring into net a host of activities like speed post and express parcel service of the post office, earnings of TV and theatre artists.
Under the new dispensation, with the exception of 38 services, which figure in the negative list, all other activities would attract 12 percent tax if the value of the service exceeds Rs 10 lakh.
Besides, air tickets and overseas holiday packages bought from online portals would be subject to the levy. Also, tests like GMAT and GRE would get more expensive as the institutions which conduct these exams would be subject to tax. However, entrance tests of institutions such as IITs and IIMs will be exempt from the levy.
Private tuition providers will now be subject to service tax if their annual turnover exceeds Rs 10 lakh, although it will not be levied on schools, university education and approved vocational courses.
As per the negative list, services like metered taxis, auto rickshaws, betting, gambling, lottery, entry to amusement parks, transport of goods or passengers and electricity transmission or distribution by discoms have been kept in the negative list.
Other important services which will not attract the tax include funeral, burial, mutate services and transport of deceased.
The government has widened the definition of 'Services' to bring in more activities under the tax net. Till now, 119 services that come under 'positive list' are subject to the levy.
The switch-over to a negative list is expected to help in smooth transition towards the Goods and Service Tax (GST) regime and would also expand the tax base. This is also expected to increase the Centre's Service Tax collection to Rs 1.24 lakh crore in 2012-13, a 30 percent jump from Rs 97,000 crore in the last fiscal
Besides, services provided to the government, local authorities or a government authority for the repair and maintenance of an aircraft would also come in the negative list.
Also, services provided by advocates to other advocates and business entities up to a turnover of Rs 10 lakh in the preceding financial year is exempt from service tax.
Services provided by way of public convenience such as provision of facilities of bathroom, washroom, urinals or toilets would be included in the negative list.
The other services which would be exempted from tax include auxiliary educational services and renting of immovable property by educational institutions in respect of education exempt from service tax.
Besides, services relating to works contract to a scheme under JNNURM or Rajiv Awas Yojana would also come under the negative list.