CA Hitesh Kothari

The Finance Act, 2016 under Chapter VI has introduced a new cess named ‘Krishi Kalyan Cess’ (KKC) on all taxable services at the rate of 0.5% of the value of such services for the purposes of financing and promoting initiatives to improve agriculture or any other purpose. This cess would come into force from 01.06.2016 and would be levied and collected ‘as service tax’ on the value of all taxable services. This cess would be in addition to any cess or service tax leviable on such taxable services. It is in the nature of a tax and not a fee since there is no quid pro quo between the payer (assesses) and the recipient (Government).

Relevant Rules to understand the implication of new levy:

  • Rule 4 of Point of Taxation Rules, 2011 (“POTR, 2011”) – Change in Effective Tax Rate
  • Rule 5 of POTR, 2011 – Service Taxed for the first time
  • Rule 7 of POTR, 2011 –point of tax for service recipient
  • Notification No. 10/2016-ST dated 01st March, 2016 (insertion of explanation in Rule 5)
  • Circular No. 194/04/2016-ST dated 26th May, 2016 (Accounting Code for payment of KKC)

Announcement in respect of following is still awaited:

  • Credit of KKC, if allowed, corresponding amendment in Rule 3 of CENVAT Credit Rules, 2004 is required

Let us analyse above Rules one by one:

  • Rule 4 says that in case of a change in effective rate of tax, the new rate would be applicable only when at least two of the three events occur after the introduction of the new rate:

a) provision of service;

b) invoicing; and

c) receipt of payment.

Where two events occur before the effective date i.e. 01st June, 2016, then the old rate would be applicable.

  • Rule 5 says that where a service is ‘taxed for the first time’ to all cases where payments are received after 01st, June, 2016 even though the invoice has been issued before 01st, June, 2016.
  • Explanations inserted vide Notification No. 10/2016 in Rule 5says that Rule 5 shall apply mutatis mutandis in case of new levy on services.
  • Rule 7 says that point of tax in case of a person who is required to pay service tax as recipients of service shall be the date on which payment is made.

Summary of the above:

  • KKC will have to be paid on
    • outstanding balance as on 31st May, 2016 for which payment is to be received after 01st June, 2016;
    • payments received before 01st June, 2016 but invoice for the same is raised after 14th June, 2016
  • Under reverse charge KKC will have to be paid along with ST @ 14% and SBC @ 0.5% as and when payment is made to the party.
  • Accounting Code for payment of KKC is as under:
Sr. No.KrishiKalyanCess (Minor Head)Tax CollectionOther Receipts (Interest)Deduct RefundsPenalties
10044-00-50700441509004415100044151100441512

Posted Under

Category : Service Tax (3162)
Type : Articles (10788) Featured (3626)
  • Kumarpal Jain

    Nice article, very well explained

  • Kailash Dahiya

    My office rent for the month of May 2016. The invoice date is 31st May 2016. Paid amount on 1st June. Do I need to pay 0.5%Krishi kalyan cess

  • Kamlesh Bhandari

    It would not be out of place here to mention that a proviso has been inserted in Rule 7 of the POTR vide Notification No. 21/2016-ST dated March

    30, 2016, to provide that where there is change in the liability or extent of liability of Service tax to be paid under Reverse Charge

  • Mashu Jindal

    Sir,
    Many thanks for the information as provided above, have one confusion on the point //outstanding balance as on 31st May, 2016 for which payment is to be received after 01st June, 2016//, may you please provide any notification as issued by govt authority stating the term as above.

    it will be helpful for all having confusion with that point.