To provide adequate finance for the development of agriculture in the nation, the finance minister of India, Mr. Arun Jaitely, while announcing the budget of 2016 levied a new cess. The rate of which will be 0.5% on the value of all taxable services, naming it as Krishi Kalyan Cess. This would be levied over and above service tax and Swatch Bharat cess. The cess is chargeable from 1st June 2016.
The meaning of Cess:
A cess is a tax that is levied by the government to raise funds for a particular purpose. Collections from the Education Cess and the Secondary and Higher Education Cess, for instance, are supposed to be used for funding primary and higher and secondary education respectively.
As per Article 270 of the Constitution, cesses imposed by the Parliament for earmarked purposes need not be shared with state governments. If there is an unspent amount, it is simply carried forward for use in the following year. While the Centre has to share the revenue from other taxes with the States mandatorily, it gets to retain the entire kitty with a cess.
Meaning of Krishi Kalyan Cess (KKC):
The cess that shall be levied according to provisions of Chapter Vl of the Finance Act, 2015. Such cess shall be known as krishi kalyan cess. It would be levied on the value of taxable services at the rate of 0.5%.
The rate of tax after KKC:
14% Service Tax+ 0.5% Swatch Bharat cess+ 0.5% Krishi Kalyan Cess = 15%
The provision under which KKC is levied:
Krishi Kalyan Cess (KKC) was announced in the Union Budget, 2016-17. A legal provision was made through the Finance Bill, 2016 (Chapter VI, clause 158) for levying the Cess.
Krishi Kalyan Cess is defined as a service tax on all or any taxable services. The rate of which shall be 0.5% on the value of such services for financing, promoting and initiatives to improve agriculture or for any other purpose relating to it.
Utilization of KKC:
As the name suggests, the proceeds from Krishi Kalyan Cess shall be utilized for the purpose of development of agriculture and welfare of farmers. Unlike other taxes, where the central government is required to share its proceeds with state government, cess is utilized by central government exclusively. The proceeds of the Krishi Kalyan Tax shall first be credited to the Consolidated Fund of India. Then Central Government may, after due appropriation made by Parliament by law in this behalf, utilize such sums of money of the Krishi Kalyan Cess for such specified purposes.
Payment of Krishi Kalyan Cess:
The levy, charge, collection, and payment of krishi kalyan cess will be independent of service tax. It also needs to be charged separately in the invoice, accounted separately in different account other than service tax.
Also, it is to be noted that for payment of krishi kalyan cess different accounting is notified by the department.
The credit of KKC:
The CENVAT credit of krishi kalyan cess would be available and shall only be utilized only for the payment of KKC. To do so, a separate account needs to be maintained for KKC. Also, refund of KKC can be claimed in service tax.
Refund of this KKC shall also be allowed as the cenvat credit is there. Further, refund of this cess shall be allowed to Exporter of Service as well as Exporter of Goods as there is no restriction of its availment. A suitable amendment is awaited in CCR’2004 as well as refund notifications.
The rationale behind the imposition of KKC is noble with intent to improve the overall agrarian economy. The sector contributes around 16% to Indian GDP. However, it doesn’t help much to the various government initiatives aimed at simplification of the business process.
The government needs to provide enough impetus to projects like Make in India, Startup India and ease of doing Business. KKC is likely to hamper these initiatives with adding to the cost of goods and as a result increase in prices.
While the government is taking a lot of efforts to introduce Goods and Services Tax (“GST”) soon in India, the logic of introducing new levies every year under the banner of new and different Cesses seems unwarranted at this stage.
If you are already using a good accounting software for your business, you should be able to setup KKC easily and apply it to the invoices.
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