What is Cess?
- Cess is a form of tax and an additional levy by the Central Government to raise funds for specific purposes. Cess is imposed by the Government only when there is a need to meet specific expenditure for the Public welfare.
- Cess is to be discontinued once the objective is met. If a person’s income comes under the non-taxable slab of the Income Tax taxation slab, they are not required to pay the cess amount.
What is an education cess?
- An education cess is an additional levy that is applied on the basic tax liability by the Government to generate additional revenue to fund primary, secondary and higher education. Apart from individuals, even corporations are required to pay this cess every year at rates determined during the annual budgets.
- This money is used by the Government in improving the existing educational infrastructure and in providing increased access to quality education within the country. Educational cess is used to fund expenses such as midday meals, opening of new Government schools & colleges, educational loans for deserving candidates from low-income background, salaries for staff and faculties working in Government-funded educational institutions, for funding specialized schemes etc.
How is education cess calculated?
- The education cess rate is calculated as the culmination of two variants of cess that is charged on the taxable income. The rate for education cess amounts to 2 percent of the total taxable amount whereas the secondary and higher education cess is 1 percent of the total taxable amount making the comprehensive rate of education cess to be 3 percent of the amount of tax.
- In order to calculate this, assume a person earns 8 Lakhs per year. The person ends up spending 1 Lakh on his personal investments and insurance leaving the rest of the 7 Lakhs to be taxable by the Government. The normal tax on this would amount to Rs.65,000 where 3% of this amount is appended to the initial tax amount as the education cess. Hence, the total income tax amount would come to Rs.66,950.
