Service Tax Negative List under Section 66D: Exempt Services in India
Section 66D of the Finance Act, 1994 identified services falling outside the service tax levy under the negative-list system. This article explains the original 17 entries, subsequent amendments, the 2016 rate and the position after GST.
Meaning of negative list and exemptions
Under Section 66B of the Finance Act, 1994, service tax was charged on the value of taxable services, other than services specified in the negative list. Section 66D listed activities excluded from that charge. An entry in the negative list was legally distinct from a service covered by a conditional exemption notification, such as Notification No. 25/2012-Service Tax (the mega exemption notification). The scope of an entry must be checked against the wording and amendments in force on the date of supply.
Service tax rate from 1 June 2016
The general effective service tax rate became 15% from 1 June 2016, comprising basic service tax of 14%, Swachh Bharat Cess of 0.5% and Krishi Kalyan Cess of 0.5%, where applicable. The earlier effective rates were 12.36% before the change to 14% in June 2015 and 14.5% following the introduction of Swachh Bharat Cess on 15 November 2015. These are historical rates, not current GST rates.
Original 17 heads of the negative list
The following entries describe the earlier framework, particularly the pre-2015 position. Certain entries were removed or narrowed by subsequent Finance Acts and notifications; this is not a consolidated list applicable unchanged throughout 2012-2017.
- Government and local authority services
- Services by the Reserve Bank of India
- Foreign diplomatic missions in India
- Agriculture and agricultural produce
- Trading of goods
- Processes amounting to manufacture
- Selling advertising space or time
- Tolls for access to roads and bridges
- Betting, gambling and lottery
- Admission to entertainment and amusement facilities
- Electricity transmission and distribution
- Specified education services
- Renting residential dwellings for residence
- Interest or discount and inter-bank foreign exchange
- Specified passenger transportation
- Specified goods transportation
- Funeral, burial and mortuary services
1. Government and local authority services
Services provided by Government or a local authority, subject to statutory exclusions. Postal speed post, express parcel post, life insurance and agency services, aircraft or vessel services, transport, and specified services to business entities were outside this entry. The scope changed over time, notably in 2016.
2. Services by the Reserve Bank of India
Services provided by the Reserve Bank of India.
3. Foreign diplomatic missions in India
Services provided by a foreign diplomatic mission situated in India.
4. Agriculture and agricultural produce
Agricultural operations such as cultivation, harvesting, threshing, plant protection and seed testing; farm labour; specified on-farm processing that does not alter essential characteristics; renting agro-machinery or agricultural land; storage, loading, packing and warehousing; agricultural extension; and services of Agricultural Produce Marketing Committees or commission agents in relation to agricultural produce.
5. Trading of goods
Trading of goods, distinguished from the provision of a taxable service.
6. Processes amounting to manufacture
Processes qualifying as manufacture or production of goods under the applicable statutory definition. Contract manufacture of alcoholic liquor for human consumption was excluded from the protection of this entry following the 2015 amendment.
7. Selling advertising space or time
Sale of space or time for advertisements, subject to exclusions including broadcasting on radio or television and changes made by the Finance (No. 2) Act, 2014.
8. Tolls for access to roads and bridges
Access to a road or bridge on payment of toll charges.
9. Betting, gambling and lottery
Betting, gambling or lottery, subject to the statutory wording and later amendments affecting related activities.
10. Admission to entertainment and amusement facilities
Admission to entertainment events or access to amusement facilities was originally covered. This entry was omitted in 2015; specified admissions were instead dealt with through exemptions, subject to conditions.
11. Electricity transmission and distribution
Transmission or distribution of electricity by an electricity transmission or distribution utility.
12. Specified education services
Pre-school through higher-secondary education, education forming part of a curriculum leading to a qualification recognised by law, and approved vocational education courses, within the relevant statutory definitions.
13. Renting residential dwellings for residence
Renting of a residential dwelling for use as a residence.
14. Interest or discount and inter-bank foreign exchange
Extending deposits, loans or advances where consideration is interest or discount, and qualifying inter-se sales or purchases of foreign currency among banks or authorised foreign-exchange dealers.
15. Specified passenger transportation
Specified transport of passengers by stage carriage, non-AC or non-first-class railway travel, metro, monorail, tramway, inland waterways, qualifying public vessels, and certain cab or auto-rickshaw services. Particular categories changed over time.
16. Specified goods transportation
Transport of goods by road other than by a goods transport agency or courier agency; specified transport from outside India to the customs station; and inland waterways, subject to changes in the law.
17. Funeral, burial and mortuary services
Funeral, burial, crematorium and mortuary services, including transport of the deceased.
Important changes in 2015 and 2016
Entertainment events and amusement facilities
The Finance Act, 2015 removed the earlier negative-list entry under Section 66D(j) concerning admission to entertainment events and access to amusement facilities. Services such as amusement park rides, water parks, gaming facilities and specified paid events consequently required consideration under the charging provisions and any applicable exemption. Notification No. 25/2012-Service Tax, as amended, provided exemptions for specified events, including cinematographic films, circus, recognised sporting events and specified cultural performances, subject to the conditions then in force. A monetary admission threshold applied to certain other events.
Manufacture and alcoholic liquor
The 2015 amendment narrowed Section 66D(f) so that contract manufacturing or job work relating to alcoholic liquor for human consumption was not protected by the manufacture-related negative-list entry merely because it involved a manufacturing process. The corresponding definition in Section 65B(40) and exemption notification were also amended.
Government and local authority services
The earlier exclusion of specified support services to business entities was broadened by amendments made effective in 2016, subject to exemptions and the relevant reverse-charge rules. Whether a particular government service was taxable depended on its character, recipient and the applicable notification and effective date.
Other entries and definitions
Advertising, passenger transport, education and other entries were also modified over the life of the negative-list regime. Approved vocational education, agricultural testing and related activities should be analysed under the exact statutory entry or exemption applicable for the relevant period rather than treated as two permanent additional heads of Section 66D.
Position after the introduction of GST
From 1 July 2017, most services came within the Goods and Services Tax framework, governed principally by the Central Goods and Services Tax Act, 2017, the Integrated Goods and Services Tax Act, 2017 and relevant notifications. Section 174 of the CGST Act provides for repeal and savings of specified earlier laws and liabilities. Past service-tax disputes and proceedings therefore may still require reference to Section 66D and the historic exemptions.
Official legislation and reference sources
- India Code - Finance Act, 1994, Finance Acts amending Section 66D and CGST Act, 2017 (including Section 174).
- Central Board of Indirect Taxes and Customs (CBIC) - archived service-tax notifications, circulars and guidance.
- GST Portal - current GST compliance and official information.
- GST Council - GST decisions and resources.
Practical note: For a dispute relating to a past service-tax period, verify the law, relevant notifications, exemptions, abatements, place-of-provision rules and any retrospective amendments as they stood during that period.