Employers and insurance companies, who have been paying service tax from last year for medical bills, will no longer have to do so from May 1.

"The levy imposed last year will not be applicable any more (from May 1)," the Central Board of Customs and Excise (CBEC) said.

Service tax was imposed on health services from July, 2010 for health check-up or treatment where the payment was made by the business entity or the insurance company to the hospital or medical establishment.

The tax is currently levied at a rate of 10 per cent of the value of health services. Besides, the employer or the insurer has to pay education cess of three per cent of the service tax.

The waiver follows government's decision to withdraw its proposal to impose tax on all healthcare services provided by hospitals with 25 or more beds and diagnostic facilities in Budget for 2011-12. The withdrawal was made following a large scale protest by the medical fraternity.

The CBEC further said that from May 1 the life insurance service will include all services provided to a policyholder.

The assessee will have the option to pay tax on that portion of the premium which is not invested, when such break up is given to the policy holder, it said.

Where the break-up is not so provided, tax amount shall be 1.5 per cent of the gross premium, it said.