How to Add Krishi Kalyan Cess Component to Service Tax

 

Overview

The Indian government's Ministry of Finance has announced a Krishi Kalyan Cess at the rate of 0.5% on all services presently liable for service tax, with effect from June 1, 2016. It implies that the service tax is set to increase from 14.5% to 15% on all services at your India centers.

To ensure that this change reflects in your invoices, you need to add a Krishi Kalyan Cess component to the tax groups you apply for your services.  

Krishi Kalyan Cess is accounted and needs to be paid separately under a separate accounting head, so it needs to be charged and shown separately in the invoice.

To add Krishi Kalyan Cess to tax groups

  1. Make sure you are in the Admin module.
  2. On the Admin Dashboard, click Setup > Tax Groups.
  3. On the Manage Tax Groups window, click the name of the tax group.
  4. On the Edit Tax Type window, click the Component tab.
  5. Click the Component Name list, and select any tax component. The fields on the screen are filled with the values related to the selected component. Replace them with the following values for Krishi Kalyan Cess:
    Field ValueDescription

    Tax

    0.5  

    Shows the value of the tax applicable for the selected tax component. Delete the number and type the tax percentage for Krishi Kalyan Cess, which is 0.5. 

    Apply Tax On

    Base Price or Discounted Price

    Allows you to select whether you want to apply the tax on the base price or the discounted price of the service. Select the same option that you have selected for the service tax component.

    Calculation Method

    Simple

    Allows you to select if the tax type is simple, compound, or surcharge. Select Simple.

     % of Price of Tax 

     100

    Shows the percentage of the base price of the service to be taxed. Set it to 100 as the Krishi Kalyan Cess applies to the complete base price of the service.

  6. Click Add.
  7. The component is added below the existing tax components in the group.
  8. To rename the component, click the name of the component, and then type Krishi Kalyan Cess
  9. If you use any other tax groups for some other centers, repeat the steps above to add the Krishi Kalyan Cess to those tax groups. 

To apply the tax changes to existing appointments

After you add the Krishi Kalyan Cess component to the relevant tax groups in Zenoti, the system shows the following alert for all the open invoices related to services (including for partial payments). Click the here link on the alert to apply the updated tax to the base prices of the services in the invoice. Note that even for partial payments, clicking the link results in applying the taxes to the whole base prices of the services, and not just on the remaining dues. 

To change the prices of services that are inclusive of taxes

If the prices of any of your services are inclusive of taxes, the increase in the service tax reduces your net revenues from the services, until you update the prices to reflect the enhanced tax.

Modify the sale price of services that are inclusive of taxes as follows:

  1. Make sure you are in the Admin mode.
  2. On the Admin Dashboard, click Resources > Services.
  3. From the Manage Services list, select a service.
  4. On the Edit Service window, click the Price tab.
  5. For each service that has the Tax Included checkbox selected, type the new price you want to apply in the Sale Price box .

    The new price is calculated as Existing sale price + (Base price of the service * 0.5/100). However, you can apply or round off the price to a value that is more suitable. 
    For example, if the base price of a service is ₹ 5000, the Krishi Kalyan Cess on it would be 0.5% of ₹ 5000, which is ₹ 25. Previously, if the sale price of the service is fixed at ₹ 5500 including the taxes, to retain the same net revenues on the service, you now need to add ₹ 25 to the sale price towards Krishi Kalyan Cess. The sale price then becomes ₹ 5525.

FAQ

For clients who purchased gift cards, packages, or membership before the service tax rate was increased, they can continue to use them to redeem services at old tax rate. For instance, if the client purchases a gift card worth ₹ 500 prior to tax rate change and uses it to redeem against the service of ₹ 500 price post the tax rate increase, no additional tax needs to be paid. If this card is used to redeem a higher priced service, say for ₹ 1000, the client needs to pay 15% tax on the balance amount that the client owes, which in this case is ₹ 70. 
For gift cards, packages, and memberships configured to be inclusive of tax, the system deducts the tax at the time of sale. Because of increased service tax rate, your net revenue is reduced by an additional 0.5% on the base price of the service.
If an invoice was created before the tax change and the service was done before the tax change, the old tax rate apply to the invoice. The old tax rate should be used, and no action is required from you at the time of closing the invoice.
Since the invoice is created prior to tax rate change and since prevailing tax rate is applied at the time of creating the invoice, old tax rates are still applicable, even if the invoice is partially paid for.
For all open invoices, the system shows an alert with a link that updates the tax on the POS window. You can choose to update the tax or retain the old tax value. If you create an appointment for a previous date after the tax changes are made in the system, the system automatically applies the new tax value, irrespective of the date.
Service tax is applicable only to services. This does not apply to product sales or purchases.
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