Rationale behind new exemptions under service tax- Budget 2017

February 2, 2017 3060 Views
Nirali Akhani
Associate Lakshmikumaran & Sridharan
Diva Devarsha
Associate Lakshmikumaran & Sridharan


The Finance Minister has introduced the Finance Bill in Lok Sabha on 01.02.2017.By virtue of the same, amendments have been made in the Notification No. 25/ 2012 – ST dated 20.06.2012 vide Notification No. 7/ 2017 – ST dated 02.02.2017.However, with GST in offing, such changes are of inconsequential nature as they do not have much financial impact. In view of the same, the relevant part of the budget speech 2017 has been reproduced below:

"I have preferred not to make many changes in current regime of Excise & Service Tax because the same are to be replaced by GST soon."

Although, a few exemptions have been introduced in the aforementioned notification mainly with an intention of infrastructural growth of tier 2 cities and social security of defencepersonnels.

Amendment by the Finance Bill, 2017

Vide the Finance Bill, 2017, following changes have been in corporated in the Notification No. 25/ 2012 – ST dated 20.06.2012. The same is as follows:

  •  As per Sl. No. 9B (inserted by notification no. 9/2016 ST dated 01.03.2016) to notification No. 25/2012-ST dated 20.06.2012, Post Graduate Programmes in Management for the Post Graduate Diploma in Management conducted by Indian Institute of Management (IIM) was exempted. Under the Finance Bill, 2017, the term "residential" has been omitted from Sl. No. 9B.

  •  The life insurance service provided or agreed to be provided by the Army, Naval and Air Force Group Insurance Funds by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government is being exempted from service tax from 2nd February, 2017.

  •  Vide entry 23A of the Notification No. 25/ 2012 – ST dated 20.06.2012, exemption from service tax is being provided in respect of the amount of viability gap funding (VGF) payable to the selected airline operator for the services of transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in a Regional Connectivity Scheme (RCS) Airport. The said exemption is being provided for a period of one year from the date of commencement of operations of the RCS airport as notified by Ministry of Civil Aviation.

Rationale behind amendment

The omission in Sl.No. 9B (a) is to expand the scope of exemption provided in the said entry. Vide the said omission, services provided by IIMs even to non-residential post graduate programmein management for the Post Graduate Diploma in Managementis exempt from service tax from now onwards. Thus, the idea is to extend the benefit of the exemption from service tax on the services provided by IIMs to the day scholars and the students not residing in the campus.

Further, the insertion of entry 26D is for welfare of members of armed, naval and air forces.

By virtue of the insertion of Entry 23A in the Notification No. 25/ 2012 – ST dated 20.06.2012, the Government has extended the benefit of exemption to the airline operators operating from the RCS Airport.

Firstly, it is pertinent to mention that RCS, also known as 'UDAN' (Ude Desh Ka Aam Nagrik) has been launched by Ministry of Civil Aviation on 21.10.2016 with an idea to set various underserved cities to figure on India's aviation map. Hence, in furtherance of the said development scheme, the benefit of this exemption has been provided to the Airline Operators by granting exemption on the consideration in form of VGF payable to the such airline operators.

Therefore, the insertion of entry 23A is to further incentivize the RCS and expand the regional air connectivity and market.


As briefly analysed above, the changes in the Union Budget 2017 – 18 have been incorporated with an idea to ensure economic growth and prudent fiscal management. The said changes have clearly put emphasis on development of small cities and improvement of social security net. The availment of said benefit by the taxpayers will further incentivize the various welfare scheme launched by the Government of India.


How will you rate the Union Budget 2017?