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Krishi Kalyan Cess

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The Finance Bill, 2016 had proposed a new Cess to be called as Krishi Kalyan Cess (KKC) @ 0.5% on all taxable services. With the President assenting the Finance Bill, 2016 on 14.5.2016, the new levy will be into effect from 1.6.2016 as proposed in the Budget.

Features & Provisions of KKC:

  1. Proceeds of KKC will be used exclusively financing initiatives relating to improvement of agriculture and welfare of farmers
  2. The Cess will come into force with effect from 1st June, 2016 and would be levied and collected ‘as service taxon the value of all taxable services
  3. W.e.f. 01.06.2016, the total Service tax to be charged will be 15%. i.e., Service tax @14%, Swach Bhatath Cess @ 0.5% and Krishi Kalyan Cess @ 0.5%. 
  4. KKC will be levied on the taxable value of service and not on the service tax component.
  5. KKC needs to be charged separately on the invoice, accounted for separately in the books of accounts and paid separately under separate accounting code which is 00441509
  6. Taxable Services, on which service tax is leviable on a certain percentage of value of taxable service (i.e., for which abatement is applicable), will attract KKC on the same percentage of value as provided in the Notification No.26/2012-Service Tax dated 20th June, 2012. So, this notification would apply for KKC also in the same manner as it applies for Service Tax. Thus, KKC will be applicable on the abated value wherever ST is paid on abatement.
  7. KKC is also payable along with service tax by the service recipient under Reverse Charge Mechanism.
  8. CENVAT credit of KKC shall be available and shall be utilized only for the payment of KKC. Thus, separate accounts needs to be maintained.
  9. Refund of this cess shall be allowed to Exporter of Service as well as Exporter of Goods as there is no restriction of its availment.
  10. Point of Taxation:

To determine the Point of Taxation for KKC, the amended Rule 5 of Point of taxation Rules 2011 will be applicable.  As per this rule, in case of new levy on services such as KKC, the new rate of tax will not be applicable if invoice is raised and money is received prior to 31.5.16. In cases where invoices is raised prior to 31.5.16 but payment is received after 1.6.16 then KKC will be applicable.

In case of advance received prior to 31.5.16, if invoice is raised within 14 days KKC will not be applicable or else KKC will be applicable.

The Summary of the applicability of KKC for the services raised before 1st June 2016 is as follows:

 

Particulars

Service is provided before 1st June

Invoice Raised before 1st June

Payment is made before 1st June

Applicability of KKC

Case 1

Yes

Yes

Yes

No

Case 2

Yes

No

Yes

No

Case 3

Yes

Yes

No

Yes

Case 4

Yes

No

No

Yes

 

The increased rate of tax from 14.5% to 15% will not just create financial burden on the consumers but also create hardship for the business entities during the transition period as KKC will be applicable on invoices raised prior to 31.5.16 for which payment was not received as on 31.05.16. One conservative option that an assessee can opt is be to pay KKC on debtors outstanding as on 31.05.16 and collect it subsequently from the customers via a debit note as they may be entitled for CENVAT Credit of KKC Cess paid.

 

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