Cess On Income Tax: Types, How To File And Calculate

Cess, is a specific type of tax, which is collected by the government to raise funds for a particular purpose, such as education or infrastructure, and is distinct from general revenue. Cess is levied to fund specific public welfare programs or projects, unlike general taxes that fund the government's overall operations.

What is Cess on Income Tax?

The Government of India imposes a cess on income tax to raise funds for specific purposes. For instance, cess on road and infrastructure tax is used to fund the maintenance of roads and other infrastructures. However, these are not regular revenue sources as the government can discontinue them once the purpose of funding a particular project gets fulfilled.

Usually, the government imposes this tax to develop different sections of our economy or to fulfil specific social causes. The funds collected from cess on tax get deposited in the Consolidated Fund of India (CFI) like other types of collected taxes. However, it is allocated only to fulfil the specific purpose for which it was levied.

Rate of Cess on Income Tax

Health and education cess at 4% is payable on the amount of income tax plus surcharge(if any). Health and education cess is applicable in case of all assessees i.e. individuals, HUF, AOP, BOI, Artificial Juridical Persons, firms, local authorities, co-operative societies and companies.

Cess on Income Tax is leviable to fulfil the commitment of the government to provide quality health services and universalised quality basic, secondary and higher education.

How to calculate cess on Income Tax?

Let’s explore how to calculate the health and Education cess on Income Tax through Example: If Mr Yashwanth has a taxable income of Rs.25 lakhs, and his taxable income after allowing all deductions comes to Rs.4.40 lakhs. Now the cess amount would be calculated on the taxable amount of Rs.4,40,000, which is explained below.

Purpose of Collecting Cess on Income Tax

Cess on Income Tax is collected to allow the government to conduct education programs and schemes that can help improve the country’s educational quality and access. The money received by the government will be used for the following purposes:

• The cess is used to pay for students’ mid-day meals.
• It is also used to establish government-sponsored schools and institutions.
• This money is also used to pay the salaries of employees in government schools and colleges.
• The government can also use this money to establish education loans at lower interest rates for students to assist them to pay for higher education.
• It can also be used to fund special programs such as the Rashtriya Madhyamik Shiksha Abhiyan, which attempts to make secondary education more affordable.
• The funds could also be utilised to help renowned institutes such as IIT and IIM open more branches in states that do not currently have access to these institutions.
• If the government intends to increase the number of educational facilities for children, the money raised through the education cess can be utilised to pay for the programs.
• It helps the government to provide and finance quality health services. 

What Are the Different Types of Cess Taxes?

Now that you know what is cess in income tax, take a look at the different types of cess tax for a better understanding:

Health and Education Cess

Financial Minister Arun Jaitley introduced the health and education cess in the 2018 Union Budget. It is levied on your income tax to meet the educational and health needs of people belonging to the BPL (below poverty line) category. The Union Government takes initiatives to improve educational infrastructure and quality through digitalisation, appoints qualified teachers, develops school buildings, etc. 

Apart from that, the government uses the funds generated from cess to improve national health schemes for rural and underprivileged communities. Government used to levy a 3% education cess on income tax. However, from FY 2018-2019, a 4% of cess is levied for improvement of health and education services.

Road and Infrastructure Cess

This cess is levied on specific excisable and imported goods like high-speed diesel, petrol, etc., under sections 109 and 110 of the Finance Act, 2018. The Government of India imposes the road and infrastructure cess on four-wheelers and other heavy vehicles mandatorily. Owners of two-wheelers, three-wheelers, electrically operated or hybrid vehicles, etc., are excluded from paying this cess. As per the recent update, a road and infrastructure cess of Rs 1.50 is levied per litre of high-speed diesel and petrol.

GST Compensation Cess

GST Compensation Cess is levied by the Goods and Services Tax (Compensation to States) Act 2017. The object of levying this cess is to compensate the states for the loss of revenue arising due to the implementation of GST on 1st July 2017 for a period of five years or such period as recommended by the GST Council.

Click here to know more about GST compensation cess 

https://cleartax.in/s/gst-compensation-cess

Construction Workers Welfare Cess

The construction workers’ welfare cess is implemented under sections 3(1) and 3(3) of the Building and Other Construction Workers’ Welfare  (BOCWW) Cess Act, 1996. As per the provisions, employers need to pay 1% of the construction cost to the Government as BOCWW cess.

Cess on Crude Oil

Natural gas and crude oil produced from domestic oil blocks are subjected to ad valorem cess. The Central Government imposes a 20% cess on crude oil and natural gas for the development oil industry.

National Calamity Contingent Duty

The Central Government imposes NCCD or National Calamity Contingent Duty on cigarettes, chewing tobacco and pan masala. Moreover, the government proposed to increase the NCCD on specific cigarettes by 16% in the 2023 Budget.

Difference Between Cess and Other Taxes

The government imposes cess charges on taxes like income tax, GST, excise duty, etc., which constitutes the basic difference between cess and tax. Scroll down to check out some more differences between tax and cess:

Difference between Cess and Surcharge:

Final Word

The government charges cess on general taxes to fund various programs and schemes. Though it is not a regular source of revenue, the government can implement cess charges to fund emergencies like social issues, relief funds for natural disasters, and so on. Every taxpayer needs to pay a cess charge along with his/her payable direct taxes. However, in the case of GST, sales tax, or service tax, the producer is liable to pay the cess charge.