Services Exempted from Tax Won't Attract Swachh Cess

The new rate of service tax plus Swachh Bharat cess will be 14.5%.

The recently imposed `Swachh Bharat' cess will not be levied on services that are exempted from tax or are in the negative list, the Central Board of Excise and Customs has said.

The CBEC has issued clarifications in form of frequently asked questions to clear the air about the cess, which was announced in this year's Budget but levied only from November 15.

“It is also proposed to have an enabling provision to levy `Swachh Bharat' cess at a rate of 2% or less on all or certain services if the need arises. This cess will be effective from a date to be notified,“ finance minister Arun Jaitley had said in his budget speech, adding that “resources generated from this cess will be utilised for financing and promoting initiatives towards Swachh Bharat“.

Although the government has Parliament's nod to levy up to 2% as Swachh Bharat cess, it notified the rate at 0.5%. An official said the tax was notified over five months after Parliament gave its approval in order to give adequate time to the industry to prepare, and the rate was kept moderate keeping in view the burden on the common man. The government notified Swachh Bharat cess on all taxable services on November 6, to be effective from November 15. Effectively , the new rate of service tax plus Swachh Bharat cess would be 14.5%. As such the cess translates into a tax of 50 paisa on every one hundred rupees worth of taxable services. The proceeds from this cess will be exclusively used for the government's `Swachh Bharat' initiatives.

There is also a view in the government that this cess also prepares the ground for a sudden jump in service tax rate under the goods and services tax regime. The GST will bring down the overall incidence of taxation but the tax rate on services will in evitably go up. This cess would be levied, charged, collected and paid to the government independent of service tax. This needs to be charged separately on the invoice, accounted for separately in the books of account, and paid separately under a separate ac counting code, which will be notified shortly. It will have to be charged separately after service tax as a different line item in invoice and accounted and treated similarly to education cess.

For example, the effective cess in respect of services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, having the facility of airconditioning or central heating in any part of the establishment, will be 0.5% of 40% of the total amount, which is, 0.2% of the total amount.

The Economic Times, New Delhi, 20th Nov. 2015