Krishi cess, luxury tax: Starting June, car purchase, air, rail travel to get costlier

As it is the consumers are burdened with plethora of taxes on any discretionary items they purchase, the government is burdening further with the introduction of Krishi Kalyan cess starting June 1.

The addition of this new cess will make eating out, mobile phone usage, air and rail travel expensive with the new Krishi Kalyan Cess (KKC) of 0.5 percent on taxable services coming into force from June.



As a result the overall service tax rate will go up to 15 percent with the imposition of Krishi Kalyan Cess.

The decision to levy Krishi Kalyan Cess on all taxable services is aimed at financing and promoting initiatives to improve agriculture.

The Central Board of Excise and Customs (CBEC) has notified that the Cess will come into force from June 1.

The service tax is levied on all services, expect a small negative list.

“The levy of KKC will add extra burden on the pockets of service recipient. The levy has already been raised from 12.36 per cent to 15 per cent within a span of one year only and will contribute to inflationary pressures,” said Amit Maheshwari, Partner, Ashok Maheshwary & Associates.

Not just that, if you are planning to buy a car with a price tag of over Rs 10 lakh, a extra 1 percent over and above the price of car will come into effect from June 1.

The finance minister had announced a "luxury tax" of 1 percent to be levied on all cars priced over Rs 10 lakh from June 1.

This extra tax will be collected by the seller of the car and will be applicable on the ex-showroom price, NDTV report said.

Last year, the government had imposed Swachh Bharat Cess of 0.5 percent on Service Tax.

HDFC Bank through SMS has already informed its cardholders about increased rate of Service Tax from June 1.

Prashant Deshpande, Senior Director, Deloitte in India said the input credit of KKC is not permitted to be used other than for payment output of KKC on taxable services.

“By implication therefore, Krishi Kalyan Cess will be a cost to the manufacturers availing services on which KKC is being paid by the service provider. Perhaps a remedy can lie in exempting Krishi Kalyan Cess on services provided to manufacturers,” he said.

Maheshwari further said as per the amendments pertaining to Point of Taxation, this has been clarified that in cases where invoice had been issued prior to levy of this cess and payment is receivable either in full or part thereof as on date of levy then this cess will be leviable from the date of levy (June 1, 2016).

“Thus the Cess would be leviable on outstanding balances as on May 31, 2016. This may prove to be regressive for service providers as it may not be possible to convince all the debtors particularly for the dues outstanding for relatively longer period and they may have to bear the cost for this extra levy,” he said.

With agency inputs

Updated Date: May 30, 2016 17:35 PM