He also provided some relief to readymade garment manufacturers by raising the abatement available for levy of taxes on retail price of some branded garments and textile made-ups.
"The purpose of the new levy (healthcare) was not merely to mobilise revenue, but to pave the way for introduction of the GST.
"However, I have decided to exempt the new levy in its entirety both in respect of services provided by hospitals as well as by way of diagnostic tests until GST comes into force", Mukherjee said while moving the Finance Bill in the Lok Sabha for consideration and passage.
The announcement was greeted with loud thumping of desks by members as the Minister hoped that it will no more be called "misery tax".
Both these proposals, mooted by the Minister as part of the budget for 2011-12 on February 28, had evoked sharp reaction from the interest groups.
During the general discussion on the Budget last week, almost all political parties wanted the Finance Minister to withdraw the healthcare service tax proposal, which was dubbed as "misery tax".
The garment traders had criticised the proposed 10 per cent excise duty on readymade garments saying it would hurt the small business.
"To address this concern, I propose to enhance the abatement of 40 per cent to 55 per cent on the retail sale price. With this relief a unit will continue to be eligible for SSI exemption in 2011-12 even if it had a turnover based on retail sale price of Rs 8.9 crore in the current year", the Minister said.