The Union Budget, 2016 proposes in Finance Bill, 2016 to impose a new Cess, called the Krishi Kalyan Cess, @ 0.5% on all or any taxable services, proceeds of which would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. The Cess will come into force with effect from 1st June, 2016. Input Tax credit of this cess will be available for payment of this cess.
The proceeds of the cess will go to consolidated Fund of India and shall be appropriated by the Parliament of India. All provisions of Service Tax shall apply to KKC.
Tax shall apply to KKC.
|Krishi Kalyan Cess (KKC)|
|On||All taxable services|
|Authority||Clause 158; Chapter VI of Finance Bill, 2016|
|@||0.50 percent of value of services|
|For||Improvement of agriculture and welfare of farmers|
|Budget Target||Rs. 5000 crore|
Statutory Provisions / Objective
Clause 158 in Chapter VI of the Finance Bill, 2016 contains the proposed statutory provision on KKC.
The ‘statement of objects and reasons’ provides that clause 158 of the Bill seeks to insert new Chapter VI so as to levy a cess to be called the Krishi Kalyan Cess, as service tax on all or any of the taxable service for the purposes of the Union for financing and promoting initiatives to improve agriculture or the for any other purpose relating thereto.
The CBEC’s clarificatory letter on Budget clarification (vide DOF No. 334/8/2016-TRU dated 29.02.2016) states that clause 158 is the enabling provision for levy of KKC. It states as follows –
“Enabling provision for levy of Krishi Kalyan Cess:
Krishi Kalyan Cess is proposed to be levied with effect from 1st June, 2016 on any or all the taxable services at the rate of 0.5% on the value of such taxable services. Credit of Krishi Kalyan Cess paid on input services shall be allowed to be used for payment of the proposed Cess on the service provided by a service provider.”
KKC shall be levied as Service Tax on all or any taxable services at the rate of 0.5 percent on the value of taxable services. KKC has been levied for the purpose of financing and promoting initiatives to improve agriculture or for any other purpose relating to it. KKC shall be in addition to any cess or Service Tax leviable on such taxable services under Chapter V of Finance Act, 1994. The proceeds of KKC shall be credited to the Consolidated Fund of India and subject to appropriation by Parliament by law. Central Government can utilize the KKC money for specified purposes. KKC shall be subject to provisions and rules as applicable to Service Tax under Finance Act, 1994.
KKC : Summary
The following assertions can be made in respect of KKC-
(a) The nature of KKC is that of a Service Tax.
(b) Rate of KKC is fixed @ 0.50 percent of value of service.
(c) The effective date for KKC is 01.06.2016 i.e., based on point of taxation, KKC shall be charged on all services provided on or after 1st June, 2016
(d) KKC shall be levied on services only which could be on all services or some of the services (as the provision provides for ‘….on any on any or all the taxable services…..’)
(e) There may be a notification issued prior to 01.06.2016 making KKC applicable to some services or class of services (rather than on all services). It is expected that some basic services may be spared from levy of KKC.
(f) KKC shall be chargeable on invoices separately as KKC like Swachh Bharat Cess. Charging Service Tax @ 15 percent (14% Service Tax, 0.50% SBC and 0.50% KKC) is not legally correct.
(g) KKC shall be charged and accounted for as a separate cess and also deposited under a new accounting code to be notified in due course.
(h) It is announced that KKC shall be cevnatable. Since KKC will be levied only on services, cenvat credit would be allowed only for services provided by service provider.
(i) Necessary amendments are expected to be brought in Cenvat Credit Rules. It is imperative that Cenvat Credit should also be allowed to manufacturers on KKC paid on input services against the duty payable on goods manufactured.
Effectively, w.e.f. 01.06.2016, the date from which KKC shall be made applicable, Service Tax structure shall be as follows:
|Tax / Cess||Rate (%)||Cenvat|
|Swachh Bharat Cess||0.50||No|
|Krishi Kalyan Cess||0.50||Yes|
Thus, out of total imposition of fifteen percent, 14.5 percent shall be cenvatable and 0.50 percent shall not be cenvatable. This would require extra care while accounting, invoicing and book keeping by the assessees.