Just like our prime minister introduced Swachh Bharat Tax as an initiative to bring about a cleanliness drive across India, similarly Krishi Kalyan Cess (KKC) was introduced in order to provide additional support to farmers for agricultural activities.
To begin with, a cess is a type of tax introduced by the government in order to serve a specific purpose. The revenue that is collected via cess can only be utilised for its specific purpose of collection and nothing else. Thus, with respect to Krishi Kalyan Cess, the amount collected is utilised for promoting agricultural activities in India.
As per the 2016 Union Budget, Finance Minister, Mr. Arun Jaitley introduced Krishi Kalyan Cess at the rate of 0.5% on all taxable services from 1st June 2016. This means that Krishi Kalyan Cess is not levied on your income but on all services on which service tax is applied. The Krishi Kalyan Cess is applicable on all payments for services such as telephone bill, internet bill, rent, restaurant bill, flight travel and digital advertisements.
Note: From the 1st of June 2016, service tax is levied at 15% of the value of taxable services under Section 66 of the Service Tax Act. The 15% includes 0.5% Krishi Kalyan Cess and 0.5% Swachh Bharat Cess. Service tax itself has been replaced by Goods and Services Tax (GST) from 1st June, 2017.
As mentioned above, Krishi Kalyan Cess in not determined on Service Tax but only on the taxed value of the service rendered. For example, if a particular restaurant bill comes to ₹200, then service tax will be ₹28 as per 14% rate of interest. Based on this, the Swachh Bharat Cess will be ₹1 as per 0.5% rate and Krishi Kalyan Cess will be ₹1 as per 0.5% rate respectively. Thus, the total bill will come to ₹230.
| Tax | Rate | Amount (₹) |
|---|---|---|
| Service Tax | 14% | 28 |
| Swachh Bharat Cess | 0.5% | 1 |
| Krishi Kalyan Cess | 0.5% | 1 |
| Total | 15% | 30 |
To elaborate further, let us go through a few examples to understand how and when is Krishi Kalyan Cess applicable.
Example 1 - If a service was provided before 1st June 2016 and the invoice was raised, and the payment was also made before 1st June 2016, then KCC will not be applicable and the total tax applicable would be 14.5%.
Example 2 - If a service was provided before 1st June 2016 and the invoice was raised later but the payment was made before 1st June 2016, then KCC will not be applicable and the total tax applicable would be 14.5%. If the invoice is not raised within 14 days of receipt of payment, then KCC will be applicable and the total tax applicable would be 15%.
Example 3 - If a service was provided before 1st June 2016 and the invoice was raised before and the payment was received after 1st June 2016, then KCC will not be applicable and the total tax applicable would be 14.5%.
Example 4 - If a service was provided before 1st June 2016 and the invoice was raised before and the payment was received after 1st June 2016, then KCC will be applicable and the total tax applicable would be 15%.
When mentioning Krishi Kalyan Cess in a particular invoice, you need to keep the following points in mind.
KKC must be charged individually on the invoice, represented distinctly in the accounts books and also has to be paid separately under different accounting code.
Swachh Bharat Tax is to be levied individually after service tax as a separate line item in the Invoice.
KCC cannot be applied on Services specified in the ‘Mega Exemption List’ and ‘Negative List’.
As per Notification Number 22/2015, KKC cannot be applied on services let off from ST.
As per Notification Number 26/2012, ST dated 20th June 2012, taxed services on which service tax is chargeable on a specific share of value of such services, will attract KKC on the exact proportion of value as mentioned in the notification number.
Though KCC and KKS came into existence during the 2016 Union Budget, both are distinct from each other. KKS states that local tax payers can declare private income or such income saved in the form of any property by shelling out tax at the rate of 30 percent, and surcharge (meaning an addition to the present tax) at 7.5 percent and fine at 7.5 percent, which comes up to 45 percent of such ‘nameless’ income. This money collected will be further utilised for agricultural development.
A cess imposed by the central government is a tax on tax, levied by the government for a specific purpose. Generally, cess is expected to be levied till the time the government gets enough money for that purpose. For instance, the education cess, which is a cess for financing primary education, imposed on all central government taxes, is to be spent only for financing primary education (SSA) and not for any other purposes. The most recent one is Krishi Kalyan Cess, which caters to the development of agriculture in India.
Krishi Kalyan Cess is a tax imposed by the Union Government on all services, which are liable to service tax, at the rate of 0.5% for financing improvement of agriculture and welfare of farmers. It came into effect on 1st June, 2016.
Back in 2016, finance minister, Mr. Jaitley had introduced a cess, called the Krishi Kalyan Cess (KKC), at 0.5% on all taxable services during the 2016 Union Budget. 1st June, 2016 is the effective date of Krishi Kalyan Cess.
KKC is not to be calculated on Service Tax but on the taxable value of the service provided. For a service worth ₹100, Service Tax will be ₹14 at 14% rate and Swachh Bharat Cess (SBC) will be ₹0.50 at 0.5%. Similarly, Krishi Kalyan Cess will be ₹0.50 at 0.5%. The total chargeable amount will thus be Rs. 115.
A Point of taxation means the point when a service shall be deemed to have been provided. KKC will be covered under Rule 5 of Point of taxation Rules 2011. Thus, all services where payment has not been received prior to 01.06.2016, KKC shall be levied even though such services have been provided prior to such date.
The money collected under KCC will be specifically utilised for the improvement of agriculture and welfare of the farmers. This amount constitutes the Consolidated Fund of India under the Central Government.
