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Cess on Income Tax

Reviewed by Anjaneyulu | Updated on Sep 30, 2020

Catalogue

Introduction

Cess is a form of tax and an additional levy by the Central Government to raise funds for a specific purpose. Cess is resorted to only when there is a need to meet the particular expenditure for public welfare.

What is Cess on Income Tax?

Cess is a variant of tax charged over the basic tax liability of a taxpayer. A cess is imposed when the government looks to raise funds for specific purposes. Cess is not the same as any other tax collected by the government such as income tax, goods and services tax, and excise duty.

For example, education cess should be used only for education purpose and not for any other purposes. Even if the amount is unspent from a particular cess collection in any year, it cannot be used for any other purpose. It has to be carried forward and used in the following year. Further, the Central Government need not be share the cess fund, either in full or part, with state governments.

Who is eligible to pay?

Every taxpayer, who has to pay the income tax, is liable to pay a cess at the rate of 4%.

The Central Government has introduced various cesses including education cess on income tax (including surcharge). Education cess was introduced at 2% to meet the governments commitment to provide and finance universal-quality basic education needs for poor people in India.

While this was helping students to complete primary education, the government realised the need to provide access to secondary and higher education as well. Through the Finance Act, 2007, it introduced an additional secondary and higher education cess of 1% to fund secondary and higher education cess. Overall education and secondary higher education cess of 3% was charged on all types of taxes.

In Budget 2018, Finance Minister Arun Jaitley proposed various programmes to meet the education and health needs of Below Poverty Line (BPL) and rural families. The cess was increased by another 1%, to fund the education and health proposals announced in Budget 2018. Accordingly, ‘Secondary and Higher Education Cess' was discontinued and 'Health and Education Cess’ at 4% on tax (including surcharge) was introduced.

To file an income tax return, the taxpayer has to make sure that he has paid the applicable health and education cess on income tax (including surcharge).

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