Krishi Kalyan Cess (KKC) | Meaning | Applicability | Cenvat Credit | Calculation
During the 2016 budget, Finance Minister, Mr. Jaitley had recommended obliging a cess, named the Krishi Kalyan Cess (KKC), and he offered to oblige the cess at 0.5% on all taxable services. This cess is going to be effective from the 1st of June, 2016. However the effectual rate of the cess will be lower than 0.5 percent as the government is offering input tax credit for the cess.
The government imposes Service Tax and they impose it on the service providers on definite service transactions but as a point of fact the customers bear the Service Tax. Under the Finance Act, 1994, service tax is classified under Indirect Tax.
During the budget of the previous year (2015), the Service Tax Rate had increased from 12.36% to 14%. Furthermore, the Swachh Bharat Cess at 0.5% also came into consequence from 15th November, 2015. Consequently, KKC’s introduction will affect the rate of Service Tax and it will become 15% after the 1st June, 2016.
The rate of the Goods and Services Tax (GST) is 17-18%. And it seems that the Service Tax Rate is moderately being increased to bring it closer to the rate of Goods and Services Tax (GST).
What is a Cess
A cess is a kind of tax which is imposed by the government when they want to raise funds for a specific purpose. A cess is always used to develop the country and the cess helps by providing the money required for developing. For instance, the collections from the Education Cess are used for funding primary education. That is how a cess works.
The vital rule of the cesses is it needs to be shared with the state government, as per Article 270 of the constitution. The cesses should always be implied by the government for fundraising purposes. As a matter of fact, if there is any unspent amount, it must be carried forward to use in the next year. The centre always has to share the revenue from other taxes with the State but in terms of the cess, the centre has the power to retain the entire kitty with the Cess.
Meaning of Krishi Kalyan Cess (KKC)
In accordance with the provision of Chapter VI of the Finance act, 2015, the Krishi Kalyan Cess is a cess which will be implied and collected by the government as Service Tax on all Taxable Services at a rate of 0.05% of the worth of Taxable Services.
Calculation of Krishi Kalyan Cess (KKC)
The Krishi Kalyan Cess will be calculated in the same way as Service Tax is calculated. Consequently, Krishi Kalyan Cess would be imposed on the same taxable value as Service Tax. Krishi Kalyan Cess will be calculated on the taxable value of the service presented. It will not be calculated on Service Tax.
An Instance of Krishi Kalyan Cess calculation-
For a service worth Rs. 200, the Swachh Bharat Cess (CBC) will be Rs. 1 at 0.5% and similarly the Krishi Kalyan Cess will be Rs. 1 at 0.5%. The service tax will always be Rs.28 at 14% rate.
So, the total amount which will be charged will be Rs. 230.
Krishi Kalyan Cess’s invoice
The Krishi Kalyan Cess would be implied and collected and remunerated to the Government independent of Service Tax. The KKC needs to be charged independently on the invoice. The KKC should also be accounted independently in the account books and it should also be paid separately under separate code of accounting. The KKC may be charged independently after Service Tax by mentioning a different line on the item of the invoice.
Krishi Kalyan Cess’s applicability
The Krishi Kalyan cess will be applicable from the 1st of June, 2016. Krishi Kalyan Cess will not be pertinent on Services stated as the ‘Negative List’ and ‘Mega Exemption List’. KKC will also not be applicable on services excused from tax of service tax as per the Notification No. 22/2015. If any payment is made before the 1st June, 2016 the cess will not be applicable as per the Rule 5 of point of Taxation Rules, 2011.
Few Examples of KKC Calculations:
Few calculation examples are mentioned here:
|Time Of Issuance of Bill||Amount of Invoice||Time of Receipt of Payment||Amount of Payment Received||Situation of Taxability|
|1. 03.05.2016||Rs. 500,000||04.05.016||Rs. 500,000||The situation is that money is not taxable as the issue of the bill and the receipt of payment is made before 1st June, 2016.|
|2. 04.06.2016||Rs. 400,000||29.05.2016||Rs. 400,000||It is not taxable as the receipt of payment is before 1st June, 2016 while the bill is issued within 14 days from the service of taxability.|
|3. 20.06.2016||Rs. 2,50,000||24.05.2016||Rs. 2,50,000||The money is taxable as issue of invoice within 14 days from the date of service is not met.|
Krishi Kalyan Cess and its insights
- Krishi Kalyan Cess should be applicable on all taxable services.
- Krishi Kalyan Cess is payable along with the Service Tax on the services rewarded from and covered under RCM.
- As per rule 7 of point of Taxation rules, in case of reverse charge services, would be the date on which contemplation is remunerated to service provider. And therefore in this case the Krishi Kalyan Cess would be payable.
- For the payment of KKC, the Cenvat Credit of KKC should be obtainable and it should only be exploited for the payment of KKC.
- For the Payment of KKC, Separate accounts must be maintained as per the Cenvat Credit Rules.
- If the Cenvat Credit is available, the refund of the Krishi Kalyan Cess should also be allowed.
- The refund of the Krishi Kalyan Cess should also be allowed to Exporter of the service and it should also be allowed to the Exporter of goods as there is no limit of its availability.
- Appropriate alteration is awaited in CCR’2004 as well as the notifications of refund.
More on KKC
When the services are covered by Abatement there is a change on the effective rate of tax. Taxable services are the types of services on which service tax is imposed on a definite percentage of value of taxable services. This service will attract the Krishi Kalyan Cess on the same percentage of worth as provided in the Notification No. 26/2012- Service Tax which was mentioned on 20th June, 2012. This notification will also be applied for KKC also in the same way as it is applied for Service Tax.
When there is a reverse charge service case, point of taxation as per Rule 7 of point of Taxation Rules, will always be the date on which deliberation is salaried to service supplier. And in terms of the reverse charge services cases, Krishi Kalyan Cess would be payable.
The Government independent of service tax will be paid the Krishi Kalyan cess and they have the power to also impose, charge and gather the collections of the Krishi Kalyan cess. The cess needs to be charged independently on the bill. The cess must also be accounted as an independent item on the books of the account in terms of accounting and it also needs to be paid independently under separate accounting code. Separate accounting code must be mentioned in bills while making the payment of the KKC. Thus, for payment of KKC, an independent accounting code is a must and it should be mentioned in the bill.
Point of Taxation for KKC
When a service is deemed to have been provided it is called as a point of taxation. Krishi Kalyan Cess is roofed under the Rule 5 of point of Taxation Rules 2011. It reads as follows:
If a service is taxed for the first time, then:-
- No tax should be implied to the level the bill has been issued and the payment received against such bills before the service became taxable.
- No tax should be payable if the payment has been received before the service becomes taxable and bill has been issued within 14 days of the date from the first time when the service was taxed.
It is very important to understand here that, Krishi Kalyan Cess in new tax but the service of it is not new. The government has expanded the range of the rules mentioned above by putting in two explanation necessities resulting which new tax is covered under the realm of Rule 5.
From 1st March 2016, Rule 5 of the Point of Taxation Rules has been altered by Notification No 10/2016-Service Tax dated 1st March, 2016 and two explanations have been added (Explanation 1 and 2) in the rule. After the alteration, Rule 5 reads:
Explanation 1: This rule must be applied mutatis mutandis in case of new tax on services.
Explanation 2: In terms of a new tax, it shall be payable on all of the cases other than the cases specified above on rule 5 of Point of Taxation Rules.
The service shall be non taxable when the issuance of bill and proof of payment is made before the date of taxability as per Rule 5(a).
Again, no service tax can be charged if the payment is received before the date of taxability and the bill is issued within 14 days from the service becoming taxable for the first time as per Rule 5 (b).
The new insertion of the explanations has resulted in increasing the limit of Rule 5 of Point of Taxation Rules. And all new levies have the flexibility to get covered under the Rule 5.
Legal Provision for KKC
The Krishi Kalyan Cess (KKC) was publicized in the Union Budget, 2016-17. For imposing the case a legal provision was made through the Finance Bill, 2016. (Chapter VI, clause 158)
According to the Finance bill 2016, Krishi Kalyan Cess is mentioned as a service tax on all of the taxable services at a rate of 0.5% percent. KKC is introduced by the government as a fundraising cess and the purpose behind it is to financing and encouraging initiatives to improve the agriculture or any other motive relating agriculture. It is a unique step taken by the Indian government and the Finance Minister to improve the condition of the Indian agriculture. Indian agriculture is full of resources but the financing always has been a major problem.
The Krishi Kalyan Cess will solve the financing problems to a large extent and it will also provide the encouragement to the people who are afraid to take an initiative as the financing has never been good. This cess will attract more and more people to invest their ideas and labor and encourage their initiatives. Thus, it can be a very useful progress for the Indian agriculture and if the workers and the government works together nicely along with the cess, the improvement will be evident.
Utilization of the money from Krishi Kalyan Cess
The money from the cess would solely be used for financing the initiatives involving the improvement of agriculture. This money will also be used for the welfare of the farmers. This project is solely for the farmers to enjoy the benefits of the cess and as a process of encouraging the initiatives, the country can develop smoothly. The money from the cess shall be credited to the Consolidated Fund of India firstly. The central government may use the money after appropriation made by Parliament by law in this behalf. They may use the money then for various purposes.
Difference between Krishi Kalyan Surcharge and Krishi Kalyan Cess
The Krishi Kalyan Cess is a different project from the Krishi Kalyan Surcharge which is also declared by the government in the Union budget 2016-17. For providing a steady and expected taxation rule and decrease black money, in the budget it was declared that domestic levy payers can announce secret profits or such profits symbolized in the form of any asset by paying tax at 30%. Surcharge is an addition to the existing tax. So, if the existing tax is 30%, then surcharge will be 7.5% and a penalty will also be 7.5% which makes a total of 45% of the secret income. If anybody makes this announcement of their secret incomes they will get immunity from the prosecution by paying the taxes.
The Finance Minister of India declared the above provision. He mentioned that Surcharge imposed at 7.5% of the secret income will be called as the Krishi Kalyan Surcharge, and this surcharge will only be used for the sole purpose of farming and countryside economy.
But the Krishi Kalyan Cess is a cess which is used to offer an encouragement to the people who are willing to take initiatives in the agriculture department. It also provides the farmers a breathing space as it offers the financing of the agriculture sector.
Thus, Krishi Kalyan surcharge is very different from Krishi Kalyan Cess.
The underlying principle behind the obligation of Krishi Kalyan cess is very noble and it is clearly thoughtful from the Indian government to improve the condition of the agriculture. The intent behind the cess is to improve the agrarian economy. The agrarian economy contributes around 16% to Indian GDP. So, the one-sixth of the country’s economy is dependent on it but it doesn’t contribute much because of its financing problems.
The government always aims at simplifying the business process and they always take initiatives to the process as it offers them a lot more contribution but the Krishi Kalyan Cess can turn around this system as it is a very noble cess and the 1st major initiative taken by the government in improving the agriculture.
But as the country is very dependent on the roots of business, the country should not look for the agriculture to hamper the steps taken for business. As business is their main strength going forward, the government needs to offer sufficient impulsion to projects like Make in India or Startup India. It will ease the way of doing business and it will offer them more development as business is the way to go for the country. But the sudden decision of enhancing the KKC motive is likely to hamper the initiatives taken for business.
Krishi Kalyan Cess is also likely to add to the rate of goods and as a result it will increase the prices. Thus the buyers and the sellers both will be hampered by the KKC and the business may suffer.
The government of India is taking a lot of attempts to bring in the Goods and Services Tax (GST) soon in India. But their idea seems to falter as they are bringing in new taxes every year which is hampering the business. Their logic of bringing in new taxes every year under the shelter of different sectors and cesses seems very unpleasant. Not only it is hampering the business but also it seems that the people of the country are disturbed by the introduction of new cesses every year.