Swachh Bharat Cess will not be levied on services exempt from tax: CBEC

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

The CBEC has issued a detailed set of clarifications in form of frequently asked questions to clear the air about the cess that was announced in the Budget 2015-16 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 need arises. This Cess will be effective from a date to be notified. Resources generated from this cess will be utilised for financing and promoting initiatives towards Swachh Bharat,” finance minister Arun Jaitley had said in his budget speech.

Though the government has Parliament’s nod to levy upto 2% as Swachh Baharat cess, it notified the rate at 0.5%. A government official said the tax has been notified in November, over five months after Parliament nod to give adequate time to the industry to prepare and the rate had been kept moderate keeping in view burden on common man.

Government notified levy of Swachh Bharat cess at the rate of 0.5% 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 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 Swachh Bharat initiatives.

There is also a view in the government that this cess also prepares the ground for sudden jump in service tax rate under the goods and services tax regime. The GST will bring down overall incidence of taxation down but tax rate on services will inevitably have to go up.

This cess would be levied, charged, collected and paid to 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 separate accounting code which would 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 cesses.

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 air-conditioning or central air-heating in any part of the establishment, would be 0.5% of 40% of the total amount, which is, 0.2% of the total amount. The cumulative service tax and Swachh Bharat Cess liability would be [14% ST + 0.5% SBC] of 40% of the total amount, which is, 5.8% of the total amount charged, according to the FAQs.

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