Swacch Bharat Cess of 0.5% wef 15th November 2015
The Swacch Bharat Cess was announced in the Budget 2015. However it was not made effective / applicable at that time.
The Budget 2015 (Finance Act, 2015) provided for the levy and collection of the Swacch Bharat Cess at a rate not exceeding 2%. The government has now notified that the Swacch Bharat Cess will be levied at a rate of 0.5% and will be effective from 15 November 2015.
Notification No. 21/2015 has been issued notifying 15th November 2015 as the date from which the Swacch Bharat Cess would be applicable.
Notification No. 22/2015 has been issued which specifies that an exemption has been granted in excess of the Swacch Bharat Cess calculated at 0.5% of the value of taxable services. Effectively, the rate of cess will be 0.5%.
Thus, the Rate of Service Tax increases to 14.5% with effect from 15th November 2015.
Below are some additional points to help you understand the implications better:
- For services covered by abatement, for example, Goods and Transport Agency (GTA) service where at present the tax is payable at 4.2% (30% of 14%), the new rate of service tax will be 4.35% (30% of 14.5%, and not 4.2%+0.5% = 4.70%). Similarly, for other services covered by abatement, the effective service tax rate will be 14.5% x effective abatement rate under the latest notification/s.
- In case of works contract, Service Tax is to be applied on the value at the rate of 14.5%. Thus, the effective rate of tax in case of original works will be 5.8% (14.5% * 40%) and in case of other than original works it will be 10.15% (14.5%*70%). Similar, would be for restaurant and outdoor catering services.
- Swacch Bharat Cess has to be collected and paid separately from service tax and is not subsumed in existing service tax rate. The Swacch Bharat Cess should be be charged separately on the invoice, accounted separately in the books of account and paid separately under separate accounting code (which is soon expected to be notified).
- If the services provided are covered by mega exemption notification i.e. 25/2012-ST. one does not need to charge only the Swacch Bharat Cess. Similar the Swacch Bharat Cess will not be applicable to the services covered by the negative list.
- If the service have been provided prior to 15th November 2015 but invoiced on / after 15th November, and no advance has been received, we believe that teh Swacch Bharat Cess should be levied as required under the Point of Taxation Rules.
- In case of reverse charge services where services have been received prior to 15th November 2015 but the consideration paid post after 15th November 2015, teh Swacch Bharat Cess will have to be paid.
- We believe that since there has been no amendment to the Cenvat Credit Rules, 2004 regarding availment and utilisation of the Swacch Bharat Cess, credit of this cess is unlikely to be admissible. However, we also do believe that a suitable amendment would be made to the Cenvat Credit Rules, 2004 in due course.
- Do remember that the Swacch Bharat Cess applicable only to services (and thus Service Tax). It does not apply to excise or customs duties. Thus, manufacturing entities should not charge any extra cess.