Passenger fares and freight charges will not attract the 12 per cent service tax - which is now applicable for all services except those on the negative list - until at least the end of September, the start of the holiday season.
The finance ministry today issued a notification exempting the Railways from service tax for three months till 30 September.
"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 30 September 2012," a finance ministry statement said.
The railway ministry has been pursuing the case with the finance ministry for exempting the Railways from the levy of service tax in its entirety. Railway minister Mukul Roy had taken up the issue with the prime minister who is currently handling the finance portfolio after the resignation of President aspirant Pranab Mukherjee.
Roy has pointed out the Railways' social role in fostering inclusive growth and its not-for-profit operations to claim exemption from service tax.
A service tax on railway passenger and freight transport was introduced in the budget for 2009-10 but has so far been kept on hold due to the opposition of the then railway minister Mamata Banerjee. The exemption has since been extended on a quarterly basis.