In the budget 2012-13, Service tax rate is being increased from 10 per cent to 12 per cent, except those in the negative list.  The negative list had 17 heads and includes specified services provided by the government or local authorities, and services in the fields of education, renting of residential dwellings, entertainment and amusement,   public transportation, agriculture and animal husbandry.

A number of other services including health care, and services provided by charities, independent journalist, sport persons, performing artists in folk and classical arts, etc are exempt from service tax.  Film industry also gets tax exemption on copyrights relating to recording of cinematographic films. 

Among the new services that would now be exempted from the negative list-based system of tax on services are advocates providing services to entities with a turnover of up to Rs.10 lakh, companies engaged in construction of metro projects, law firms, and entities providing public conveniences.

The new exemptions relates to the support services in the field of formal education, exemption to firms of advocates on the same lines as to individual advocates, construction works under the JNNURM and Rajiv AwasYojna, construction of monorail and metro and transportation by cable car. Further there are also exemptions relating to the repairs and maintenance of aircrafts to Government, services provided by sub-contractors to the main contractors who are exempt, services by public libraries and Employees State Insurance Corporation (ESIC), services by way of public conveniences and sale of going concerns.

On the other hand, services such as coaching classes and training institutions will come under the tax net, though it will not be levied on school, university education and approved vocational courses, Travel in first class and in air-conditioned rail coaches, too, will attract service tax.

With the inclusion of these 14 services, the total number of tax-exempted services in the negative list goes up to 38. In effect, all other services which do not figure in the exempted category list would be taxed at the rate of 12 per cent.

Presently a total of 119 services on the basis of a ‘Positive list’ were liable to service tax. To widen the tax base in keeping with the extension of services, the government widened the definition of 'Services' to bring in more activities under the tax net on the basis of a negative list. The government has switch over to the negative list based approach to taxation to increase its tax collection. The collection target of Rs.1.24 lakh crore has been set up for the current fiscal.