krishi kalyan cess

Have you been noticing the creeping inflation in your restaurant bills, phone bills and travel agent bills? Well, put it down to the cess effect. After ushering in the 0.5 per cent Swacch Bharat Cess last year, the finance minister proposed the Krishi Kalyan Cess (KKC) in the February 2016 Budget. With effect from June 1, KKC adds on another 0.5 per cent to your service tax burden. After this latest addition, the service tax rate on all the services you use stands at 15 per cent.

what is a cess ?

Unlike taxes, amounts collected via cess are meant be segregated in government accounts and used for a specific purpose. So KKC is to be solely used towards financing activities for the improvement of agriculture and farmer welfare. Although charged along with service tax, KKC is to be listed separately by your service providers on the invoice, as a distinct line-item and paid using a unique accounting code notified by the government.

what is KKC ?

The KKC is based on the idea that levying a cess on a thriving sector of the economy can help fund a lifeline to a sector which is in distress. India’s transition to a service economy from an agrarian economy picked up after the reforms in the early 1990s. Services now contribute around 58 per cent to GDP, around thrice the contribution from agriculture. But despite ranking second worldwide in farm output, India has a legacy of recurring farm distress. The problem is particularly acute this year after two consecutive years of monsoon failure. KKC will ensure that strong growth in services will automatically boost the kitty available to the Centre, for alleviating farm distress. Over the long-term, any improvement in agricultural productivity can help farmers earn higher income and consumers benefit from lower prices as a result of better supplies, keeping a lid on food inflation.

Krishi Kalyan Cess is in addition to the current rate of service tax (14%) plus swatch Bharat cess (0.5%). Hence the total service tax rate is 15% from 1st June 2016 onwards.

Earlier, from 1st June 2015 onwards the Government had abolished the education cess (2%) and secondary & Higher education cess (1%), and enhanced the rate of service tax from 12% to 14%.
Then from 15th Nov 2015 onward government levies the Swatch Bharat Cess @0.5% resulting the total service tax rate to 14.5%.

Accounting treatment of KKC

AS KKC is in addition to Service tax (14%) and swatch bharat cess (0.5%) , therefore KKC shall be charged on the invoice value i.e value before charging Servive tax and swatch bharat cess. 

for example:

suppose M/s shivam consultancy has charged Rs.100000  plus service tax for its services .

here total amount to be charged shall be -

       Basic cost of services      : 100000

       Service tax                       : 14000 

       Swatch bharat cess          : 500

       KKC                                : 500

                                               ______

                   total                       15000