GDPI WAT primer on Swachh Bharat Cess

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GDPI WAT primer on Swachh Bharat Cess The Government has announced a new cess, Swachh Bharat cess of 0.5%, on all services liable for service tax, effective from November 15, 2015. All services, such as air travel, movie tickets, telephony, eating out and banking will become marginally expensive due to it. This article talks in detail about Swachh Bharat Cess? What is Cess? How does it differ from Tax? Why is Government imposing Swachh Bharat Cess ?How will Swachh Bharat Tax calculated? What is Swachh Bharat Cess? The Swachh Bharat cess will be an additional levy, making the effective service tax rate 14.05% against the current 14%. The 0.5% levy will translate into a tax of 50 paisa only on every Rs 100 worth of taxable services. Service tax is a tax on Services. It is a tax levied on the transaction of certain services specified by the Central Government under the Finance Act, 1994. Our article Basics of Service Tax explains Service Tax in detail. Why is Government imposing Swachh Bharat Cess ? Swachh Bharat Cess is a step towards involving each and every citizen in making contribution to Swachh Bharat. Given the impact of cleanliness on public health leading to generation of diseases such as malaria, dengue, diarrhoea, jaundice, cholera etc. the cess will help in improving public health. Increased allocation for Swachh Bharat Abhiyan can prevent many of these diseases. Expenditure on health adds up to Rs 6,700 crore annually (approximately Rs 60 per capita). New cess will be used exclusively for the Swachh Bharat initiative such as building toilets. By 2019, the government plans to spend Rs. 2 lakh crore to construct nearly 11 crore toilets and cover almost every Indian household. How will Swachh Bharat Tax calculated? Cess would be calculated on the abated value or value arrived as per the Service Tax Rules, 2006. Cess will be counted on abetted/compounded amount in cases where rate is not 14%. Cenvat credit is not available on Swachh Bharat cess. All provisions including those related to computation of taxable value, assessment, exemption, payment, penalty applicable to service tax would apply to Swachh Bharat Cess. For restaurants or eating joints having air conditioning facility, the cess would be 0.5% of 40% of the billed amount i.e 0.2%. On what services Swachh Bharat cess will be payable? Swachh Bharat cess will be payable – On services which are provided on or after November 15, invoice in respect of which is issued on or after that date and payment is also received on or after that date. – Where service is provided on or after November 15, 2015 but payment is received prior to that date and invoice in respect of such service is not issued by November 29, 2015. Swachh Bharat cess will NOT be payable – If payment has been received and invoice is raised before the service becomes taxable, i.e., prior to November 15, 2015 – Swachh Bharat cess will NOT apply on those services for which payments have been received prior to November 15 and invoices raised before November 29. It would mean that the Railway and flight tickets booked before November 15 will not attract the additional levy. Our article Bill,Invoice, Receipt and Voucher talks about difference between the words bill, voucher,invoice and receipt. Are the businesses happy with Swachh Bharat Cess? Indian industry hasn’t taken too kindly to the recent imposition of a cess to help fund the Swachh Bharat initiative, saying that companies haven’t been given enough time to implement the levy and that it goes against the government’s push to improve ease of doing business. They said eight day’s notice was too short and that the cess should be implemented only in January. It needs to be charged separately on the invoice, needs to be accounted separately in the books of account and needs to be paid separately under separate accounting code which should be notified separately. Industry also said the cess wasn’t in line with the government’s plan to roll out the goods & services tax ( GST) on April 1, given that this is meant to subsume all surcharges and cesses. How much does Government is expecting to collect through Swachh Bharat Cess? In budget 2015-16, the government had put the service tax collection target at over Rs 2.09 lakh crore. It is expected that the Swachh Bharat cess would yield Rs 400 crore over and above the service tax collections. Collection of taxes by Government in various categories is shown in image below. BTW As on Jul 2015, the government has spent 94 crore only on print, radio and television ads to promote the cleanliness mission that PM Modi launched on Mahatma Gandhi’s birth anniversary October 2 2014. Tax collected by Government Tax collected by Government What is the timeline for imposing the Swachh Bharat Cess? The government had said in the Budget in February 2015 that it may impose a cess of up to 2 per cent to fund the ambitious cleanup initiative if needed. PM Narendra Modi launched the Swachh Bharat programme on 2 October 2014. The 0.5 per cent cess on all taxable services was notified by the Centre on November 6 2015 and will take effect on Nov 15,2015. What is Cess? How does Cess differ from Tax,Duty,Surchare Some common terms related to Tax such as Levy,Duty,Cess and Surcharge are given below. – Tax: Any money the government takes from you,legally, for economic activity is tax generally expressed as percentage Taxes are either direct, where the money goes directly to the government example TDS on your salary, or indirect, where the money goes from you to someone else’s and then to the government pocket, ex Service Tax, VAT. Levy means the act of charging the tax. For example Government will levy a 10% duty, has levied a 0.5% cess, etc – Duty: This is an on-border tax charged on goods (commodities, or things that you can physically touch) either while coming into the country or going out of the country. Generally, a percentage of the value of the good. – Cess: This is a tax on tax, levied by the govt for a specific purpose, for example 3% Education cess, Higher Education cess etc,service tax at 14% is inclusive of 3% cess. which is usually charged on actual tax liability. Generally cess is expected to be levied till the time the Government gets enough money for that purpose. The education cess is meant to finance basic education in the country. – Surcharge: This is an additional burden to the tax being already levied. Generally, surcharge is levied for a certain period time. For instance, the 10% surcharge being levied on super rich in India . – Surcharge and Cess are similar, but differ in the way they are charged. For example some tax is 30%, so out of Rs 100 earning, Rs 30 is paid as tax. Now if the govt levies a 10% cess, the total tax becomes Tax of Rs 30 + 10% of Tax i,e 3 ,will become Rs 33. However, if the Government levies a 10% surcharge, the total tax will become Rs 40.

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