KRISHI KALYAN CESS w.e.f 1st JUNE ~ SERVICE TAX RATE IS 15%
With the recent announcement by Ministry of Finance in the union budget, the service tax rate goes up from 14.5% to 15% with effect from today, 1st June 2016. This increase is due to introduction of 0.5% krishi Kalyan cess.
In addition, its more shocking in the way this new cess has been introduced. The government has added few explanations to the point of taxation rules. As per amended Rule 5, The service provider are liable to collect this additional 0.5% cess on all the outstanding invoices as on 1st June 2016 i.e. In case where invoices has been raised before 31st May and payment has not been collected before 31st May, we need to collect additional 0.5% from the customer. This unexpected and illogical announcement makes the businessmen more concerned and even causes losses. Also it’s very bad fate that same government take different stand each time. This is the not the situation when Swacch Bharat cess were implemented. Only people in ministry behind this amendments can explain the logic to us.
We advise our client to raise a separate new invoice for 0.5% on all the outstanding invoices and don’t please never amend the invoice that is already raised. It’s not right way to amend the invoice that has been already raised.
One happy news in this total messy update ~ this 0.5% new krishi kalyan cess paid on all your service purchase bills can be taken cenvat credit against payment of Krishi kalyan cess, unlike Swaach bharat cess which is not allowed as cenvat credit.
So if any case, if your service provider ask for this extra 0.5% cess on the outstanding payables, please request them a separate invoice and pay the extra cess. This extra cess can be taken credit against the liability of krishi kalyan cess liability. So it won’t add to your cost, unless you are not eligible to take cenvat credit for some other reason like you are doing exempted services, you are into trading and not into service industry, (or) your output services is not taxable etc.,
AMENDED RULE 5 FOR YOUR REFERENCE
where a service is taxed for the first time, then,
a. no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;
b. no tax shall be payable if the payment has been received before the services becomes taxable and invoice has been issued with in fourteen days of the date when the service is taxed for first time.
Explanation 1.- This rule shall apply mutatis mutandis in case of new levy on services.
Explanation 2.- New levy or tax shall be payable on all the cases other than specified above.‖.
The above two explanations are newly added through Notification 16/2016-Service tax dated 1st March 2016.