Budget 2016: Krishi Kalyan and Infrastructure: New cesses to increase burden on individuals

Total collection from the three different cesses is expected to touch Rs 18,000 crore.

Written by Sandeep Singh | New Delhi | Updated: March 1, 2016 12:13 pm
(Illustration by: C R Sasikumar) While Krishi Kalyan Cess will lead to an increase in outgo for individuals on all taxable services, the infrastructure cess is set to impact the price of cars and they may see a price increase of up to Rs 1 lakh. (Illustration by: C R Sasikumar)

In another move that will put additional tax burden of an aggregate of Rs 8,000 crore on the individuals across the country, the finance minister proposed to levy two now cesses — Krishi Kalyan Cess and Infrastructure Cess.

While Krishi Kalyan Cess of 0.5 per cent will be levied on all taxable services with effect from June 1, 2016, to finance and promote initiatives to improve agriculture, the government has projected to collect an aggregate of Rs 5,000 through this tax in the financial year 2016-17. Krishi Kalyan Cess on all taxable services will increase service tax rate by 0.5 per cent to 15 per cent.

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In addition, the government has announced to levy infrastructure Cess at the rate of 1 per cent on small petrol, LPG, CNG cars, 2.5 per cent on diesel cars not exceeding 4m in length and engine capacity of up to 1500cc. The cess on all other higher engine capacity vehicles (SUVs and bigger sedans) would be levied at the rate of 4 per cent. The government has projected that it would collect an aggregate of Rs 3,000 crore through infrastructure cess in the financial year 2016-17.

These come in addition to the Swachh Bharat Cess that the government levied at the rate of 0.5 per cent on the value of taxable services with effect from 15 November 2015. Therefore the government has levied a three cess on individuals across the country, within a period of last six months.

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The government has projected to collect a sum of Rs 10,000 crore through Swachh Bharat Cess in the financial year 2016-17, taking the aggregate collection from the three cesses to Rs 18,000 crore in FY’17. This is equivalent to the total amount mopped up by the government through its disinvestment programme in the financial year 2015-16, till date.

The government also decided to rename ‘Clean Energy Cess’ levied on coal, lignite and peat as ‘Clean Environment Cess’ and has increase its incidence from Rs 200 per metric tonne to Rs 400 per metric tonne.

While Krishi Kalyan Cess will lead to an increase in outgo for individuals on all taxable services, the infrastructure cess is set to impact the price of cars and they may see a price increase of up to Rs 1 lakh. Even as the Supreme Court has already imposed a ban on registration of diesel vehicles with engine capacity of over 2000 cc in Delhi, citing rise in pollution levels, now the government has decided impose infrastructure cess between 2.5 per cent and 4 per cent.

According to industry estimates, as a result of the cess the increase in prices could range from Rs 2,500 on entry level small cars such as Maruti Alto or Tata Nano and can go over Rs 1 lakh on high-end vehicles which are priced above Rs 30 lakh.

In his Budget speech, the finance minister said: “The pollution and traffic situation in Indian cities is a matter of concern. I propose to levy an infrastructure cess of 1 per cent on small petrol, LPG and CNG cars, 2.5 per cent on diesel cars of certain capacity and 4 per cent on other high engine capacity vehicles and SUVs.”

He also proposed “to collect tax at source at the rate of 1 per cent on purchase of luxury cars exceeding value of Rs 10 lakh”.

Rakesh Srivastava, senior VP Hyundai Motor India Ltd said it as a ‘dampener’ for auto industry. “The industry has been experiencing growth challenges and there was an expectation of a scrappage scheme to remove high emission and low mileage vehicles. The taxation has come as a dampener and will effect demand, creating challenges towards sustainable growth,” he said adding that the price increase for HMIL’s cars would range from Rs 3,000 on entry level cars to Rs 80,000 on the SUV SantaFe.

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