New Service Tax Rate From June 1, 2016

Finance minister, Mr. Jaitley had proposed to impose a Cess, called the Krishi Kalyan Cess (KKC), at 0.5% on all taxable services during Budget 2016. Effective date of Krishi Kalyan Cess is 1st June 2016. In this article, we are trying to answer most commonly asked questions about this new tax.

As you know, Service Tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994.

During last year’s budget (2015), the FM had increased the Service Tax Rate from 12.36% to 14%. Moreover from 15th Nov 2015, Swachh Bharat Cess at 0.5% also came into effect. Therefore, after introduction of KKC, the effective rate of Service Tax will become 15% post 1st June 2016.

It appears that the Service Tax rate is slowly being increased to bring it closer to the goods and services tax (GST) rate of 17-18% which is expected to be applicable soon.

How KKC will be calculated?

Krishi Kalyan Cess would be calculated in the same way as Service tax is calculated. Therefore, KKC would be levied on the same taxable value as service tax. KKC is not to be calculated on Service Tax but on the taxable value of the service provided.

Example of Krishi Kalyan Cess calculation –
For a service worth Rs. 100, Service Tax will be Rs. 14 at 14% rate and Swachh Bharat Cess (SBC) will be Rs. 0.05 at 0.5%. Similarly, Krishi Kalyan Cess will be Rs. 0.05 at 0.5%.

So the total chargeable amount will be Rs. 115

Whether KKC would be required to be mentioned separately in invoice?

KKC would be levied, charged, collected and paid to Government independent of Service Tax. This needs to be charged separately on the invoice, accounted for separately in the books of accounts and paid separately under separate accounting code.S BC may be charged separately after Service tax as a different line item in Invoice.

In case of services covered by Abatement, what would be effective rate of tax?

Taxable Services, on which service tax is leviable on a certain percentage of value of taxable service, will attract KKC on the same percentage of value as provided in the Notification No.26/2012-Service Tax dated 20th June, 2012. So, this notification would apply for KKC also in the same manner as it applies for Service Tax.

For instance in case of GTA Service, it would be 15%*30%= 4.50%.

Is Krishi Kalyan Cess applicable on Reverse Charge Mechanism (RCM) service?

Yes. KKC would be applicable on all taxable services. Hence, KKC is payable along with service tax on the services availed and covered under reverse charge mechanism.

How does Krishi Kalyan Cess apply on ‘Works Contract Service’?

The value of services would be calculated as per Rule 2A of Service Tax (Determination of Value) Rules, 2006. Tax needs to be applied on the value so arrived at the rate of 15%. Effective rate of tax in case of original works and other than original works would be 6% (15%*40%) and 10.5% (15%*70%) respectively

Whether Krishi kalyan Cess needs to be collected and paid separately from service tax?

KKC would be levied, charged, collected and paid to government independent of service tax. This 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 code as notified separately.

Whether separate accounting code to be mentioned in Challans while making payment of Krishi kalyan Cess.
Yes. For payment of KKC , a separate accounting code would be notified.