Krishi Kalyan Cess (KKC) @ 0.5% introduced (from 1st June 2016)

Miscellaneous

Krishi Kalyan Cess (KKC) @ 0.5% introduced (from 1st June 2016)

It is the time to face new cess named as Krishi Kalyan Cess (KKC) @0.5% on the value of all taxable services as introduced by Budget 2016 w.e.f 1st June 2016. Many of us have some questions about introduction of this new cess. In this short blogs we covered almost all such questions.

About Krishi Kalyan Cess(KKC):

A cess is a tax which is to be utilized for a specific purpose for which it is collected like education cess for promoting education, Swatch Bharat cess for cleanness and similarly Krishi kalyan Cess for improving agriculture. Hence Krishi Kalyan cess is introduced to finance and promote the initiative to improve agriculture in our country which is much needed due to increasing food requirement in a highly populated country like India.

Krishi Kalyan Cess is levied on what:

Krishi Kalyan Cess is levied on value of all taxable services, Hence Effective Rate of Service tax would be 15% from 1st June 2016:

Service Tax               : 14%+

Swatch Bharat Cess: 0.5%

Krishi Kalyan Cess  : 0.5%

Effect of Krishi Kalyan Cess on Pocket of Common man :

After introduction of Krishi Kalyan Cess all services would become costlier like Rent payment, Travel, Advertisement, Internet bill, Construction etc. Hence more money outflow from the pocket of common man and less savings. Service tax is an indirect tax hence all burden of increased tax would be passed on to ultimate consumer. Due to increase in rate of Service tax cost of manufacturer would increase, which will lead the price hike of their product or services.

Krishi kalyan Cess on Services Provided Before 1st June 2016:

As per rule 4 of Point of Taxation Rules, 2011 : Determination of Point of taxation in case of change in effective rate of tax:

If any service has been provided before introduction of Krishi Kalyan Cess i.e. 1st June 2016, but payment is made on or after 1st June 2016 against an invoice raised after 1st June 2016, Then Krishi kalyan cess would be applicable. But if invoice was also raised before 1st June and only payment is made on or after 1st June 2016, then Krishi kalyan cess would not be applicable. This can be understood with the help of following data:

Case Service Provided Invoice Raised Payment made KKC will apply or not
Case 1 Before Before Before NO
Case 2 Before Before After NO
Case 3 Before After After YES
Case 4 After After After YES
Case 5 After Before Before NO
Case 6 After After Before YES

 

Before : Before 1st June 2016

After : On or after 1st June 2016

To simplify,  there are three criteria Service, Invoice and Payment, out of these three the side in which two falls rate of that side would be applicable.

Krishi Kalyan Cess in Services under RCM (Reverse Charge Mechanism):

Krishi kalyan cess would also be applicable on services under Reverse Charge or Partial Reverse Charge. In case of Reverse charge or Partial Reverse Charge Service receiver is liable to pay his portion of KKC along with Service tax. In case of abatement or composite work like Works contract, KKC with Service tax @ 15% would be calculated on value of services after abatement or value of works contact X 40% or 70% as applicable.

For more detail of Service tax on Works Contact Click here

Cenvat Credit of Krishi Kalyan Cess:

Unlike SBC, Input Credit of  Krishi Kalyan cess would be allowed to be taken and this can only be utilized for payment of Krishi kalyan cess on output service. We know that input credit on  Swatch Bharat Cess is not allowed.

Other Important Points about Krishi Kalyan Cess:

Some other important points which needs to be noted about Krishi Kalyan Cess:

  1. Service provider would be required to mention Krishi kalyan Cess like SBC separately in his invoice.
  2. Legal provision of Krishi Kalyan Cess can be found in Finance Bill 2016(Chapter VI clause 158).
  3. Krishi kalyan Cess is different from Krishi Kalyan Surcharge which is levied @ 7.5% on undisclosed income as per scheme announced in Union budget 2016.
  4. The proceeds of Krishi kalyan cess would first be credited to the Consolidated fund of India and Central govt. after due appropriation made by Parliament, utilize this sum for purpose as specified.
  5. All other provision of Finance Act 1994 along with rules made there-under like interest , penalty, refund etc would also apply to KKC as these apply in case of  Service tax.

If you like it, please comment and share on social media to spread financial awareness.

CA Ashok Kumar