Krishi Kalyan Cess – Have you treated it correctly? Applicability and impact on pending invoices/ payments as on June 1, 2016

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As you are aware that the effective rate of service tax has increased from 14.5% to 15% with the introduction of KrishiKalyan Cess (“KKC”) of 0.5% with effect from June 1, 2016.  In this regard, it is to be noted that if the payment is received on or after June 1, 2016, then the service provider will be liable to pay KKC to the Government as per Point of Taxation Rules, 2011.

The applicability of KKC, being a new levy for the first time on services, is governed as per Rule 5 of Point of Taxation Rule, 2011.  The explanation thereto. Rule 5 of Point of Taxation Rules, 2011 is as under:-

“Where a service is taxed for the first time, then –

  1. 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;
  1. b) no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date when the service is taxed for the 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.”

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In lights of the above applicable provisions of the law and explanation thereto, any invoice which has been issued prior to 01-June-2016 for which the payment are made on or after 01-June-2016 shall attract the new levy KKC.

Krishi Kalyan Cess 4To illustrate, if an invoice is issued on May 30, 2016 with a service tax rate of 14.5% and the payment is received on June 2, 2016, then the service provider would be liable to pay KKC to the Government i.e. the effective rate would be 15%.  He will be required to either collect it from his customer or pay from his pocket.

We hereby request and advise you to make the payment on or before 31-May-2016 against invoice already issued. Without prejudice to the above, in the event, wherein, any invoice which remains outstanding as on 31-May-2016, it is necessary that an additional invoice be issued for levy of new tax KKC on such outstanding amount.

It may be further noted that the additional levy of KKC on such outstanding amount shall be eligible for CENVAT credit.

It is to be noted that if such payment is not made, then the service provider will be liable to pay interest and penalty on KKC not deposited based on the above provision.

In case of any clarifications you may contact us on or on +91-70222-51221.

Article Credit – CA Nitin Nahar & CA Mohit Bajaj

Are u a Start Up?????

The time Narendra modi, the Prime minister had announced the Start up India plan on 16th January, 2016 there has been buzz around everywhere specially amongst youths and entrepreneurs.

The main ideology behind this is to promote bank financing for start-up ventures to boost entrepreneurship and encourage Start-ups with jobs creation. The Start-up India initiative is also aimed at promoting entrepreneurship among SCs/STs & women communities.

Still the main question which arises in the minds of entrepreneurs is whether there businesses are eligible for schemes and benefits under Start up India plan????

If you are the one searching for the same query, then here lies the answer of your questions.

For a startup to be recognized as one, you must fall into these criteria as mentioned below:

  1. It must be an entity registered/incorporated as a:
    Private Limited Company under the Companies Act, 2013; or
    Registered Partnership firm under the Indian Partnership Act, 1932; or
    c. Limited Liability Partnership under the Limited Liability Partnership Act, 2008.
  2. Five years must not have elapsed from the date of incorporation/registration.
  3. Annual turnover (as defined in the Companies Act, 2013) in any preceding financial year must not exceed Rs. 25 crore.
  4. Startup must be working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.
  5. The Startup must aim to develop and commercialise:
    a) a new product or service or process; or
    b) a significantly improved existing product or service or process that will create or add value for customers or workflow.
  6. The Startup must not merely be engaged in:
    developing products or services or processes which do not have potential for commercialisation; or
    undifferentiated products or services or processes; or
    c. products or services or processes with no or limited incremental value for customers or workflow
  7. The Startup must not be formed by splitting up, or reconstruction, of a business already in existence.
  8. The Startup has obtained certification from the Inter-Ministerial Board, setup by DIPP(Department of Industrial Policy and Promotion)  to validate the innovative nature of the business, and
  9. be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an incubator established in a post-graduate college in India; or
  10. be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or
  11. be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an incubator recognized by GoI; or
  12. be funded by an Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with SEBI* that endorses innovative nature of the business; or
  13. be funded by the Government of India as part of any specified scheme to promote innovation; or
  14. have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.

* DIPP may publish a ‘negative’ list of funds which are not eligible for this initiative.

Here’s a quick analysis of the eligibility criteria: