Understanding Swachh Bharat Cess

Swachh Bharat Cess on 0.5% Service Tax

Swachh Bharat Cess on 0.5% Service Tax

The Government of India has announced a Swachh Bharat Cess (SBC) of 0.5% on all taxable services that is to be levied and collected with effect from 15 November 2015. The notification to this effect was released by the Government on 6 November 2015 vide Notification No 21/2015-Service Tax, covering Swachh Bharat Cess, under Chapter VI (Section 119) of the Finance Act 2015.

How does the Swachh Bharat Cess (SBC) impact us?

The SBC of 0.5% will be paid by all citizens who avail of any service that is taxable under service tax. What this means is that for every Rs 100 spent in availing any taxable service, Rs 0.50 will be paid to the government as SBC. This will apply to services like a/c restaurants, rail, road and air services, lottery services, insurance premiums and the like which means all those availing such services will now have to pay an extra 0.5%. However, the SBC will not be levied on services listed under the negative list or those that have been exempt from service tax.

How will SBC be collected?

Firstly, it must be clarified that while the SBC is referred to as a cess, it is actually a service tax. SBC is not applicable on the amount of service tax but on the value of taxable services. All service providers will now have to charge the SBC as a separate and clear amount, and this will in turn be registered in the service provider’s accounts under a separate heading, and paid to the government under the specified accounting code as per notification from the government.

The existing service tax is 14% (raised recently from 12.5% to 14%) and the SBC will be charged additionally at 0.5%, therefore making the total service tax stand at 14.5%.

The SBC will come into effect from 15 November 2015 and will only apply to cases where the invoice has been raised on or after 15 November 2015. For instance, if a railway ticket has been booked prior to 15 November, but the date of travel happens to be post 15 November, then no SBC will apply.

Is the SBC integrated with the Cenvat Credit Chain?

No, SBC is not integrated with the Cenvat Credit Chain and therefore credit of SBC cannot be availed. Also, the SBC cannot be paid by accessing any other tax or duty.

Where will the collected SBC go?

All SBC collected will be credited to the Consolidated Fund of India account and will be utilized by the Government of India for purposes of implementing the Swachh Bharat Abhiyan.

Why has the government introduced the Swachh Bharat Cess?

The SBC is aimed at raising additional funds to effectively implement stated goals under the Swachh Bharat Abhiyan. When Prime Minister Modi took office in May 2014, he adopted the Swachh Bharat Abhiyan as one of the primary goals of his government that was aimed at improving the overall health and well-being of citizens. The mission was formally launched on 2 October 2014.

Health and hygiene directly impacts people’s lives but have been given very little attention towards improving personal hygiene and cleanliness in the surroundings that people live in. The Prime Minister started an awareness on the need to maintain cleanliness and give up open air defecation that has been a common practice in India on account of lack of toilets in people’s homes.

This was taken up on mission mode and backed with an actionable plan to ensure that India built 12 crore toilets in rural and urban areas, and ensure that India became free from open air defecation by 2019. The Swachh Bharat Abhiyan has the following goals:

  • Totally eliminate open air defecation.
  • Build pit latrines in all homes of those living below poverty line, with 80% cost subsidy.
  • Total eradication of manual scavenging.
  • Recycling and processing of solid waste into energy and other by-products like fertilizer.
  • Improve people’s awareness for proper sanitation and on the importance of personal hygiene.
  • Involve people, with the help of private sector and various NGOs, to spread the need to pro-actively adopt and promote the goals of the Abhiyan.

To ensure that Swachh Bharat Abhiyan is able to meet its stated goals, the government has decided to introduce the Swachh Bharat Cess for raising funds to meet mission objectives.

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