What is a Cess?
- A cess is a tax on tax that is imposed by the central government, to raise funds for a specific purpose.
- Generally, cess is expected to be levied till the government gets enough money for that purpose.
- For example, a cess for financing primary education has to be spent only for financing primary education and not for any other purposes.
- As per Article 270 of the Constitution, cesses imposed by the Parliament for particular purposes should not be shared with state governments.
- If there is an unspent amount, it is simply carried forward for use in the following year.
- Some of the cesses include education cess, road cess, infrastructure cess, clean energy cess, Krishi Kalyan cess and Swachh Bharat cess.
Krishi Kalyan Cess (KKC):
- Krishi Kalyan Cess (KKC) was announced in the Union Budget, 2016-17.
- It is a Service Tax on all Taxable Services at the rate of 0.5% of the value of Taxable Services.
- Money collected from the Krishi Kalyan Cess has to be used for the improvement of agriculture and welfare of farmers.
- KKC is applicable from 1st June 2016.
How to Calculate KKC?
- Krishi Kalyan Cess would be calculated in the same way as Service tax is calculated.
- KKC is not to be calculated on Service Tax but on the taxable value of the service Tax.
The example of Krishi Kalyan Cess calculation:
- For a service worth Rs. 100
- Service Tax will be Rs. 14 at 14% rate
- Swachh Bharat Cess (SBC) will be Rs. 0.50 at 0.5%.
- Similarly, Krishi Kalyan Cess will be Rs. 0.50 at 0.5%.
- So the total chargeable amount will be Rs. 115.
- Cenvat credit of payment of KKC is permissible under Cenvat Credit Rules, 2004.
- As cenvat credit is there, refund of KKC is allowed for Exporter of Service as well as Exporter of Goods.
- Rule 5 of the Point of Taxation Rules, 2011 has been amended with effect from 1st March 2016.
- Rule 5(a) provides that when the issuance of invoice and receipt of payment is made before the date of taxability then the service shall be non-taxable.
- Rule 5 (b) provides that if the payment received before the date of taxability and invoice is issued within 14 days from the service becoming taxable for the first time even then no service tax to be charged.
Krishi Kalyan Surcharge:
- As the name Suggests, surcharge is an additional charge or tax
- A common feature of both surcharge and cess is that the Centre need not share it with states.
- Krishi Kalyan Surcharge was announced by the Government in the same Union Budget, 2016-17.
- In order to provide a stable and predictable taxation regime and reduce black money, it was announced in the budget that domestic taxpayers can declare undisclosed income by paying tax at 30% and surcharge at 7.5% and penalty at 7.5% which is a total of 45% of the undisclosed income. Such declarants will have immunity from prosecution.
- The Finance Minister while declaring the above provision mentioned that Surcharge levied at 7.5% of the undisclosed income will be called as Krishi Kalyan Surcharge, to be used for agriculture and rural economy.
Other Important Points to Remember:
- Government love to rely on cesses because they are an easy way to raise tax revenue of the government.
- Unlike taxes, cesses can be introduced, modified and removed at any time.
- KKC needs to be charged separately on the invoice and paid separately under separate accounting code
- KKC is not applicable on service mentioned in Negative List and Mega Exemption List.
- KKC is applicable on Reverse Charge Mechanism (RCM) service.
- Usually, taxes and surcharges go to the consolidated fund of India and can be spent for any purposes whereas, cess goes to the consolidated fun of India but can be spent only for the specific purposes.
ConclusionThe main objective of Krishi Kalyan Cess is noble with an intent to improve the overall agrarian economy, which contributes around 16% to Indian GDP.
Cesses seem to be emerging as the favourite form of taxation to fund the pet schemes of the government.
Possible Questions from this topic:
1. What is the rate of Krishi Kalyan Cess?
2. Money collected from Krishi Kalyan Cess will be used for which sector?
Ans: Agricultural sector
3. What is the rate of Krishi Kalyan Surcharge on undisclosed income?
4. Services, where Krishi Kalyan Cess is not applicable, are
Ans: Negative list and Mega exemption list
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