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Krishi Kalyan Cess at 0.5% on all taxable services effective from 1st June 2016

The Finance Act 2016 had provided provision for levy and collection of Krishi Kalyan Cess (KKC) under section 158 of the Finance Act, 2016 at a rate 0.5% on the value of services. The objective of behind introducing KKC was to financing and promoting initiatives to improve agriculture or for any other purpose relating thereto. Incidentally, it was also seen as precursor to introduction of GST where rate of tax is expected to be substantially higher than current rate of service tax. The levy was to become effective from 01.06.2016. Though there is very little time that is given to people to prepare to pay this tax. Now, let us look at certain critical things as far as this Cess is concerned.

  1. It is going to be referred as Krishi Kalyan Cess, (KK Cess- in short).
  1. The rate of CESS is 0.5% of the value of taxable Service. Accordingly w.e.f. 01.06.2016, the total Service tax to be charged will be 14% (ST) + 0.5% (SBC) + 0.5% (KKC)
  1. This KK Cess will have to be calculated on the value of taxable services. Unlike the earlier Education Cess & SHE Cess, wherein they were calculated on the service tax amount.
  1. In the case of abated services like Short term accommodation, works contract, etc., wherein there is an abatement, this KK Cess will have to be calculated on the abated value of the service. For example, in the case of original works contract, wherein service tax is payable only on 40%, the revised tax structure will be as follows:

Total bill value                                               – Rs.1,00,000/-

Service tax @ 14% on 40%                            – Rs.      5,600/-

SB Cess @ 0.5% on 40% of Rs. 1L                – Rs.         200/-

KK Cess @ 0.5% on 40% of Rs. 1L              – Rs.          200/-

In other words, earlier the effective rate of service tax was 5.80% and now will be 6.00%

  1. All the provisions relating to Interest, penalty, refunds and exemptions as applicable to service tax are applicable to KK Cess also.
  1. Credit of KK 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.
  1. As far as transitional provisions are concerned, after 01.06.2016, the circumstances when and what rate of tax is applicable is tabulated below for easy reference.
Sl. No. Date of issuance of Invoice Date of receipt of payment Taxable event date Effective Rate
1 25.05.2016 26.05.2016 25.05.2016 14.50%
2 28.05.2016 20.05.2016 20.05.2016 14.50%
3 05.06.2016 27.05.2016 27.05.2016 14.50%
4 14.06.2016 27.05.2016 27.05.2016 14.50%
5 20.06.2016 27.05.2016 20.06.2016 15.00%
6 20.06.2016 02.06.2016 02.06.2016 15.00%
7 20.06.2016 22.06.2016 20.06.2016 15.00%
  1. From contracting, billing, accounting, challans and returns perspectives it is recommended to bifurcate and show separately the KK Cess for the purpose of clarity.

Source : As received by mail from [email protected]

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