What is Cess?

Cess means tax on tax, levied by the government for a specific purpose. Generally Cess is expected to be levied till the time the govt. gets enough money for that purpose. The Education cess, that is levied currently, is meant to finance basic education in the country.

For instance:

Govt. levies 3% Education cess for FY 2017-18. Also Govt. would levy 4% Health and Education cess from FY 2018-19.

What is Surcharge?

Surcharge is an additional burden  to the tax being already levied. Generally Surcharge is levied for a certain period of time.

For instance: 

10% Surcharge on income tax being levied where total income exceeds Rs. 50 lakh but below Rs. 1 Cr.

15% Surcharge on income tax being levied where total income exceeds Rs. 1 Cr.

Are the Surcharge and Cess same?

Surcharge and cess may look same, but the difference is in the way of charging.

For instance,

Say some tax is 20%, so out of Rs. 100 earning, Rs. 20 is paid as tax. Now if the government levies a 10% Cess, the total tax will become Rs. 22 (20% of 100= 20 & 10% of 20= 2, Total Tax 20+2=22).

However if the government levies a 10% Surcharge & 10% Cess, the total tax will become Rs 24.2 (20% of 100= 20 & 10% Surcharge of 20= 2, Tax + Surcharge 20+2=22 and 10% Cess of 22= 2.2, Total Tax= 22+2.2=24.2).

So, you may understand that cess can be calculated upon (Total Tax + Surcharge).

What is Education cess?

Education cess is an additional levy on the basic tax liability. Government uses the collected money from cess to improve the structure of education in the country. Also government do such charitable works like giving Mid Day Meal, Free books, uniforms, cycle etc. to the students with the money collected as cess.

What is the rate of Education cess?

Till FY 2017-18 / AY 2018-19, the rate of Education cess is 3% ( 2% cess for Primary education and 1% cess for Secondary & Higher education). It is levied on Personal income tax and Corporation tax.

According to Budget 2018, the existing 3% Education cess will be replace by a 4% ‘Health & Education Cess‘. It means this 4% rate will be applicable from FY 2018-19 / AY 2019-20.

What will be the effect on Taxpayers?

As existing 3% Education cess will be replace by a 4% ‘Health & Education Cess’, obviously the tax liability will be increased. Let’s look at the example below to see how much it differ.

For instance:

If the Taxable Income is Rs. 500,000/- , then following tax liability will arise,

Tax at Normal Rates for Resident Individuals
Type of Taxpayer Tax Rate Tax + Edu. Cess @3% (FY 2017-18) Tax+Edu. & Health Cess @4% (FY 2018-19) Differ
Individual < 60 yrs & HUF 5% 12,875/- 13,000/- 125/-
SR Citizen (60-80 yrs) 5% 10,300/- 10,400/- 100/-
Very SR Citizen (above 80 yrs) 5% 0 0 0

So, in simple words you need to pay 1% extra cess from FY 2018-19. Hope your confusion on cess is cleared now. For more queries, please comment in the comment box below.

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Qualification: LL.B / Advocate
Company: N.P. LAHA & CO
Location: Sheoraphuli, West Bengal, IN
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  1. S. ADIMULAM says:

    Sir, I have contributed an amount of Rs. 15000.00 to private Educational Institution in the name of Building Fund. Whether it is exempted? if so under which section, kindly clarify.

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March 2021