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_KRISHI KALYAN CESS_*
As per Chapter VI of Finance Act, 2016, Krishi Kalyan Cess (KKC) will be applicable @ 0.5% with effect from 1st June 2016.
It will be levied in the form of an additional levy of Service tax
*Change in effective rate of Service Tax (effective from 01.06.2016)*
Effective rate of service tax is being increased from 14.5% to 15% by levying Krishi Kalyan Cess @0.5% on value of taxable services.
KKC was announced in the Union Budget, 2016-17.
*CENVAT Credit:*
Finance Minister ,in his budget speech, has clarified that
\”Input Tax credit of Krishi Kalyan Cess will be available for payment of this cess \”
Therefore,the cenvat credit of KKC shall be available and shall be utilized only for the payment of KKC. Thus, separate accounts needs to be maintained.
It is expected that as soon as KKC comes into force, the CENVAT Credit Rules, 2004 would also be amended accordingly to allow CENVAT Credit of Krishi Kalyan Cess.
However, for SB Cess, department had clarified that CENVAT credit of same would not be available.
*Invoicing and accounting*
KKC needs to be charged separately on the invoice, accounted for separately in the books of accounts and paid separately under separate accounting code.
Each component of Service Tax (i.e. service tax 14%, SB Cess 0.5% and Krishi Kalyan Cess 0.5%) should be separately shown on invoice and should be separately accounted for & paid separately under separate accounting code (expected to be notified shortly).
*Point of Taxation*
Since KKC is a new levy of service, Rule 5 of the Point of Taxation Rules, 2011 (as amended) shall be applicable.
According to the said Rule, *tax shall not be levied only in 2 circumstances* :
*(i)* In case where payment has been received and invoice is raised before the applicability of KKC, i.e. prior to 1 June 2016;
*(ii)* In case payment has been received before the applicability of KKC and invoice is raised within 14 days, i.e. upto 14 June 2016,
On perusal of the above circumstances, it appears that any amount received on or after 1 June 2016 for services provided prior to 1 June 2016, KKC shall be applicable.
As of now there is no clarity provided by Government on applicability of KKC for services provided and invoice raised before 1st June 2016 but amount received after 1st June 2016. However,it appears that at present the Government may not clarify the position as they believe that as per Rule 5 of POTR, the amount is payable (though on a standalone basis, the charging section 66B read with Section 67A does not impose the said levy). In any case the Government is of the view that the assessees are able to recover these amount from customers/ clients.
*_The point worth noting is that Rule 5 of POT rules is not same as it used to be at the time of SBC owing to addition of an explanation requiring levy of KKC in all cases except 2 situations mentioned above (i & ii)._*
In such cases, the service provider shall have to raise a separate debit note / supplementary invoices for such clients.
Therefore ,
_PAY ALL YOUR BILLS BEFORE 1st JUNE TO AVOID NEW TAX since this will get applicable for all bill payments made after 1st June even if the bill was issued before 1st June._So it is better that you advise clients to make payment of the arrears by 31st May 2016, to save the levy of Krishi Kalyan Cess, if applicable, at a later stage.