Budget 2016 has proposed to impose a Cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services. The new effective service tax could henceforth be 15%.
The service tax was increased to 14% in Budget 2015. There was an additional 0.5% cess added to this service tax named Swachh Bharat Cess. Therefore the effective rate of Service Tax is currently at 14.5% with effect from 15th Nov 2015. Experts feel that the rate is slowly increased to bring service tax closer to the expected goods and services tax (GST) rate of 17-18%.
Service tax is levied by the government on service providers on certain service transactions, and is actually borne by the customers. It is an Indirect Tax under the Finance Act, 1994.
The proceeds of Krishi Kalyan Cess introduced will be used for financing initiatives relating to improvement of agriculture and welfare of farmers effective 1st June 2016.
The Krishi Kalyan Cess shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force.
The proceeds of the Krishi Kalyan Cess shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Krishi Kalyan Cess for such specified purposes.