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Government to impose 0.5% Swachh Bharat cess on services from November 15, 2105

All services, including air travel, telephony, eating out and banking will become expensive from November 15 as the government on Friday decided to impose a 0.5 per cent cess on all taxable services to fund the Swachh Bharat programme.

The additional cess would be over and above the 14 per cent service tax rate, which is already being levied and may yield the government an additional about Rs 400 crore during the remainder of the current fiscal.

“The government has decided to impose, with effect from November 15, 2015, a Swachh Bharat cess at the rate of 0.5 per cent on all services, which are presently liable to service tax,” a Finance Ministry statement said.

Here are some points which need to be noted

a) No SB Cess on goods: SB Cess is levied under Chapter VI of the Finance Act, 1994 and is applicable only on provision of taxable services. Hence, no SB Cess shall be imposed on the goods manufactured.

b) Computation of tax under Works contract: In terms of Rule 2A of the Service Tax (Determination of Value) Rules, 2006, tax needs to be applied on the value so arrived at the rate of 14.5%. Accordingly, effective rate of tax would be as under:
In case of original works: 5.8% (14.5%*40%); and
Other than original works: 10.15% (14.5%*70%)

c) Computation of tax on Restaurant and Outdoor catering services: In terms of Rule 2C of the Service Tax (Determination of Value) Rules, 2006, tax needs to be applied on the value so arrived at the rate of 14.5%. Accordingly, effective rate of tax would be as under:
In case of Restaurant services: 5.8% (14.5%*40%); and
In case of Outdoor catering services: 8.7% (14.5%*60%)

d) Computation of tax under Reverse Charge Mechanism: SB cess along with Service tax shall be paid on services under Reverse Charge Mechanism as SB Cess is applicable on all taxable services.

e) SB Cess to be charged and shown separately in Invoice: SB Cess would be over and above the present 14% Service tax rate. Hence, SB Cess needs to be charged separately on the invoice, needs to be accounted separately in the books of account and needs to be paid separately under separate accounting head which may be notified separately.

f) In the absence of any notification providing for availment of credit of SBC, it would directly add to the cost of product and services. If you are manufacturing excisable goods, you will have to factor in additional cost of 0.5% on all services received by you in the course of manufacturing. Similarly, if you are providing taxable service, SBC paid on all your input service become cost. If you are exporter of goods or service, you will not be entitled for refund of SBC.

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