6 things you must know about Krishi Kalyan Cess

The Central Government had announced,at the time of budget 2016, a new cess, namely, ‘Krishi Kalyan Cess’ (“KKC”), which is to be levied at rate of 0.5% on the value of all taxable services w.e.f June 1, 2016. Earlier the rate of service-tax was 14.5% (after including Swacch Bharat Cess at 0.50%).But after the introduction of KKC the effective rate of service tax would beat 15%. For example- If a service of Rs.100 is provided then amount of tax would be computed as follows:

Service tax – Rs 14 (@ 14% ),

Swachh Bharat Cess (SBC) – Rs.0.05 (@0.5%),

Krishi Kalyan Cess would be Rs.0.05 (@0.5% rate).

Recently, the CBEC has issued various notifications on KKC. Impacts of such notifications are given hereunder:

1) KKC will be levied, charged, collected and paid separately to the Government independent of service tax. CBEC has allotted separate accounting codes for KKC [Circular No. 194/01/2016-ST]

2) KKC is not leviable on services which are exempt from the whole of service tax by a notification or special order issued under Finance Act, 1994. In case of services, where service tax is leviable on abated value, KKC will also be leviable only on that taxable value [Notification No. 28/2016 – Service Tax]

3) KKC is also leviable on services on which service tax is leviable as per reverse charge mechanism. –[Notification No. 27/2016 – Service Tax].

4) Cenvat credit of KKC is available but it shall be utilized only for the payment of KKC, i.e. credit of KKC is available only for service providers. Manufacturers of goods are not eligible to take cenvat credit of KKC paid on input services. -Notification No. 28/2016 – Central Excise (N.T)

5) Point of taxation for levying KKC would be determined as per Rule 5 of the Point of Taxation Rules, 2011 since KKC is a new levy. If invoice is issued and payment is received before June 1, 2016, KKC would not be levied and if payment is made before June 1, 2016 and invoice is raised before June 14, 2016.

6) SEZ units are entitled to claim refund of Krishi Kalyan Cess paid on input services along with service tax. Rebate of Krishi Kalyan Cess paid on input services is available in case of export of services – Notification No. 29/2016 – Service Tax and Notification No. 30/2016 – Service Tax