Krishi Kalyan Cess @ 0.5% on all taxable services from 1st June

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Arun Jaitley while announcing the Budget 2016 has introduced a new cess which would be levied @ 0.5% on the value of all taxable services. This would be levied @ 0.5% and would be levied over and the above the Service Tax and the Swachh Bharat Cess.

The Krishi Kalyan Cess has been levied for the purpose of financing and promoting initiatives to improve agriculture and would be applicable from 1st June 2016.

What is Krishi Kalyan Cess?

Just like Swachh Bharat Cess has been levied for cleanliness, similarly Krishi Kalyan Cess has been introduced for improving agricultural facilities.

A Cess is basically a Tax that is collected by the government to be used for a specific purpose. The collections from levy of cess can be used only for the purpose for which it has been collected and not for any other purpose. In the case of Krishi Kalyan Cess, the amount collected through this cess can only be used for the purpose of improving the Agricultural facilities.

The Krishi Kalyan Cess is not levied on your Income but would be levied on all Services on which Service Tax is levied. Therefore, from 1st June, the effective rate of service tax would be 15% i.e.

Particulars Amount
Service Tax 14%
Swachh Bharat Cess 0.5%
Krishi Kalyan Cess 0.5%
Total 15%

This new Krishi Kalyan Cess would be applicable on all your Payments for Services like like Telephone Bill, Internet Bill, Rent Payment, Restaurant Bill Payment, Under Construction Property, Air Travel Agent, Digital Advertisements,  etc. It is to be noted that the Service Provider cannot simply mention 15% Tax on the Invoice and he would be required to mention the break up of the Invoice.

Krishi Kalyan Cess for Services provided before 1st June

Krishi Kalyan Cess is applicable from 1st June 2016. In cases where the services have been provided after 1st June and the payment received after 1st June – Krishi Kalyan Tax would be applicable in all such cases.

However, in some cases – it may be applicable for services provided before 1st June as well. The following chart explains the cases on which the Krishi Kalyan Cess would be applicable and the cases in which the Krishi Kalyan Cess wont be applicable

Krishi Cess
Case 1: Service is provided before 1st June, Invoice is raised and payment received before 1st June – Krishi Kalyan Cess would not be applicable and total tax applicable would be 14.50%.

Case 2: Service is provided before 1st June, Invoice is raised after 1st June but the payment received before 1st  June – Krishi Kalyan Cess would not be applicable and total tax applicable would be 14.50%

It is to be noted here that if the Invoice is not raised within 14 days of receipt of payment, Krishi Kalyan Cess would be applicable and the total tax applicable in such a case would be 15%.

Case 3: Service is provided before 1st June, Invoice is raised before 1st June but the payment received after 1st  June – Krishi Kalyan Cess would not be applicable and total tax applicable would be 14.50%. (Source: Official Notification by Ministry of Finance)

Case 4: Service is provided before 1st June, Invoice is raised before 1st June but the payment received after 1st  June – Krishi Kalyan Cess would be applicable and total tax applicable would be 15%.

Imp Note: In case of part payment received or part invoice issued – each of the above case would be individually applicable. Therefore for part payment received before 1st June – Krishi Kalyan Cess would not be applicable and for payment received after 1st June – Krishi Kalyan Cess would be applicable.

Other Relevant Points regarding Krishi Kalyan Cess

  1. Krishi Kalyan Cess should be levied and collected @ 0.5% in accordance with the provisions of Chapter VI. This cess would be levied @ 0.5% on the total value of services for the purpose of financing and promoting initiatives to improve agriculture.
  2. The proceeds of the Krishi Kalyan Cess shall first be credited to the Consolidated Fund of India and the Central Govt after due appropriation made by Parliament in law in this behalf, utilise such sums of money of the Krishi Kalyan Cess for the purpose specified above.
  3. The provisions of Chapter V of the Finance Act 1994 and the rules made thereunder including those relating to refunds and exemptions from tax, interest and penalty shall, as far as may be, apply in relation to the levy and collection of the Krishi Kalyan Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services.
  4. Input Credit of Krishi Kalyan Cess would be allowed to be claimed against Krishi Kalyan Cess. However, it is to be noted that input credit of Swachh Bharat Cess is not allowed to be claimed.

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and loves to help people with their Tax Queries.