Cess on Income Tax 

Cess on income tax is a type of additional tax or levy that the Government of India (GoI) collects to raise funds for a particular purpose. These specific purposes are government welfare schemes, programs or projects. However, not all such programs are funded through cess. The GoI uses cess tax exclusively to fund specific improvement projects. 

Cess on income tax cannot be resorted without the need to meet a specific public welfare expenditure. 

In detail, let us know about the cess tax meaning, cess tax types, and how to calculate education cess on income tax. 

What is cess on income tax?

Since the cess tax enables the government to provide inclusive access to health, education and more through their welfare schemes, the cess tax’s full form is ‘access’. The word ‘access’ was shortened to ‘cess’ to avoid its mistaken connection with aspects related to census. 

Cess, meaning in tax, is a clear and pre-determined tax rate over and above the taxpayer’s base tax. 

Cess on income tax does not stay forever. Once the government has fulfilled its revenue requirement for the social welfare schemes, it can discontinue it. 

The cess tax you deposit goes to the Consolidated Fund of India (CFI). It is then allocated to the specific purpose for which it was accrued. 

The current cess rate on income tax is four per cent, which applies to the taxpayer’s income tax. 

What are the different types of cess on income tax? 

Let us learn about different types of cess on income tax in India. 

Health and education cess in income tax

During the Union Budget 2018, the then Finance Minister, Arun Jaitley, introduced the health and education cess on income tax. The purpose of collecting this cess was to promote economic inclusion of the Below Poverty Line (BLP) population in health and education services. 

The education and health cess on income tax is for the inclusive development of social infrastructure. The two pillars of social infrastructure, viz. Health and education are imperative for improving the quality of life of Indian citizens and moving towards becoming a developed nation. For this, the GoI takes several initiatives to better the quality of healthcare and education services. Primary initiatives include:

• Physical infrastructure improvement
• Enhancing digitalisation
• Promoting research and development
• Recruitment of quality doctors and teachers
• National healthcare schemes and more

Before FY 2018-19, GoI levied a three per cent health and education cess. However, from FY2028-19, the health and education cess on income tax is four per cent.

Road and infrastructure cess in income tax 

Like social infrastructure, physical infrastructure is also vital for a country’s development. Therefore, under section 109 and section 110 of the 2018 Finance Act, the GoI imposes ₹1 road and infrastructure cess. This cess and surcharge on income tax applies to the purchase of high-speed diesel and petrol per litre. 

This cess type is not imposed on all vehicles but mandatorily on four-wheelers and heavy vehicles. Electric vehicle owners and two-wheeler and three-wheeler vehicle owners are excluded from this cess. 

GST compensation cess 

This cess tax applies to luxurious goods and goods of the demerit category. 

Crude oil cess 

To promote the development of the oil and natural gas industry, GoI imposes a 20 per cent cess. This applies to domestic oil blocks, which produce crude oil and natural gas. 

Knowing about 4 cess on income tax and understanding their significance in economic development is essential. 

How do you calculate cess on income tax in India?

Surcharge and cess on income tax can be computed based on the income tax liability of the taxpayer. At present, every taxpayer pays a four per cent cess along with their income tax. 

Here is a hypothetical example to understand the concept of cess. 

Suppose Laxmi has an annual income of ₹13 lacs. Therefore, she would be paying income tax worth ₹2.5 lacs. Therefore, 4 per cent of ₹2.5 lacs would be her applicable cess. 

Therefore, Laxmi must pay a cess of ₹10,000 for the financial year. She must pay this along with the ₹2.5 lacs income tax liability as per her tax slab.

Conclusion 

Cess on income tax can help the government in its inclusive growth goals. It is just a minor addition to the taxpayer’s income tax liability. A person without income tax liability will not have to pay the cess tax.