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:
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.