Krishi Kalyan Cess (KKC) – No Kalyan to Taxpayers

The Central Government has levied Krishi Kalyan Cess (KKC) w.e.f. 1st June 2016. The KKC will be levied @ 0.5% of the value of taxable service. To illustrate, w.e.f. 1st June 2016, the invoices of service provider will be issued in the following manner: –

Particulars Amount (In Rs.)
Value of Service 1000
Service Tax @ 14% 140
Swachh Bharat Cess @ 0.5% 5
Krishi Kalyan Cess @ 0.5% 5
Total Amount of Invoice 1150

The services which are exempt from service tax shall also be exempt from the levy of Krishi Kalyan Cess.

The person liable to pay service tax under reverse charge will also be liable to make payment of KKC under reverse charge.

KKC will be charged on same value on which service tax is charged. Thus if a service is subject to abatement for the purpose of service tax then such abatement will also apply for the purpose of KKC.

Frequency for payment of KKC will be same as they apply in relation to service tax. Thus for e.g. if individual or partnership firm, who are liable for quarterly payment of service tax, shall be liable for quarterly payment of KKC.

As per budget speech 2016 of Hon’ble Finance Minister, Cenvat Credit of KKC will be available however the enabling provisions has not yet been made in Cenvat Credit Rules 2004. Thus in absence of enabling provisions, department may dispute the Cenvat Credit availment of KKC. Thus it is advised to take Cenvat Credit of Krishi Kalyan Cess only after necessary changes have been made in Cenvat Credit Rules 2004.

Applicability of Krishi Kalyan Cess During Transitional Period

The applicability of KKC will depend upon the time when the service has been provided. The point in time when the service has been provided is determined as per Point of Taxation Rules 2011. The point of Taxation is determined differently for the person liable to pay KKC as Service Provider vis a vis person liable to pay KKC as recipient of service. The same has been explained in following manner:-

The Person Liable to Pay Krishi Kalyan Cess as Service Provider

The point of taxation in case of service provider will be determined as per rule 3 of Point of Taxation Rules 2011. Rule 3 determines the point of taxation.

The Person Liable to Pay KKC as Service Receiver

The Point of Taxation in case of person liable to pay KKC will be the date of payment to service provider. However if payment is not made within 3 months from the date of invoice then very next after expiry of three months will be the point of taxation.

Thus in respect of a service, where the person is liable to make the payment of KKC as service receiver, KKC will be payable on payment made on or after 1st June 2016. For e.g. M/s XYZ, a partnership firm, provided Manpower supply service to M/s ABC Ltd. during the month of May 2016. Invoice date is 28th May 2016. However the payment has been made on 10th June 2016. In the instant case, M/s ABC Ltd. will be liable for payment of Krishi Kalyan Cess under reverse charge since the point of taxation is 10th June 2016.