The Budget 2016 provision to levy Krishi Kalyan Cess (for the welfare of farmers) on all services comes into effect from June 1.
That means, from June 1, 0.50% Krishi Kalyan Cess will be levied on service tax. As a result, this will increase the service tax burden of distributors by 50 basis points, which means the gross service tax payout goes up to 15%.
The service tax hike is also going to impact investors (though marginally), since fund houses charge service tax on management fee. Suppose the total expense ratio (TER) is 2.50% and the scheme is charging 1% management fee, service tax is levied on 1% fee. Fund officials say that the TER might go up by 1 to 2 basis points.
