On November 15, 2015, the Union Government of India started charging individuals and businesses a tax (with a minimum of 0.5% and a ceiling of 2%), called the Swachh Bharat Cess (SBC). The money that this tax raises will go towards the Swachh Bharat Mission, a flagship program of the ruling NDA government.
An extension of the previous government’s Nirmal Bharat Abhiyaan, what is unique about this iteration is the programme’s tax component, which was introduced to ensure that Indian civil society contributes directly to the Mission.
So how much does the SBC come to?
As the name suggests, the SBCis a service tax that will be levied on all taxable services.The minimum taxable amount of 0.5% is in effect across the board, and has raised the composite service tax rate from 14% to 14.5%.
This translates intoa cess of ₹114.5for every 100 rupees(₹14.00 + ₹0.5) spent purchasing a taxable service.The money this generates will be funnelled into the Urban Development Ministry and the Ministry of Drinking Water and Sanitation, both of which are responsible for administering the Swachh Bharat Mission.
Do I include the SBC when calculating the service tax for an invoice?
Since the SBC is levied independently of other taxes, you would need to calculate and mention it separately when raising an invoice. Similarly, you would note it down as a distinct expense in your account books and pay it using its own unique tax code, which the government will provide.
How will the cess affect my business?
The cost of all taxable services that your business either utilises or provides will go up. This includes the following services:
- Flight and train tickets
- Hotel bookings
- Cell phone and landline bills
- Food and beverages consumed at restaurants
- Food delivery services
- Air-conditioning or heating services for your office
- Work contracts
How do I figure out the taxation point? (i.e. is the tax retroactive, and how does it affect services, payments and invoices that were rendered, issued, or raised prior to, during, or after the November 15 deadline?)
- Services that were invoiced and paid for prior to November 15 are not liable to be taxed (so no, the tax isn’t retroactive)
- Services that were paid for prior to November 15, but had their invoices raised between November 15 and 29, are also not liable
- Services that were paid for prior to November 15, but were only rendered after November 15
- Services that were paid for and rendered prior to November 15, but the invoice for which was raised after November 29
- Services paid for, rendered, and invoiced on or after November 15
The 2015-2016 budget pegged the cess at 2%, which had India Inc. worried. However, the actual government notification puts the cess at 0.5% (as discussed above). This means a significantly smaller burden for businesses. Regardless, some business owners are concerned that any additional cess is bound to make an already complex tax system even more convoluted.
Taxes are an unavoidable feature of participatory citizenship, and understanding them can help you deal more proactively with the impact.