All About Education Cess

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An important component of the tax that each individual has to pay to the government is the education and health cess. Earlier collected as two separate cess – namely the Primary Education and Secondary and Higher Education Cess, it has now been consolidated and levied as Health and Education Cess since financial year 2018-19.

What is education cess?

Education cess is an additional levy that the taxpayer has to pay over and above the basic tax liability. This revenue collected by the government will be used for a specific purpose i.e. to promote the education sector in our country. The cess is levied in two parts, namely the Primary Education Cess and the Secondary and Higher Education Cess. It is a part of income tax and is governed by the Income Tax Act. 

What is the education cess rate?

The education cess levied changes every financial year and is announced during the annual budget. Currently, the health and education cess rate stands at 4% of the tax payable. The government resorts to levying cess since it is easy to introduce, alter and eliminate, as compared to normal taxes that need an elaborate modification that is to be approved by the parliament. 

How to calculate education cess?

The education cess is levied on the tax that is already payable by an individual. For example, Shishira earns an income of INR 10,00,000 and the income tax that she has to pay is calculated as INR 80,000. The education cess that has to be calculated is on INR 80,000 and not any other amount. 

Therefore, she will have to pay INR 3,200 toward education cess calculated at 4% per annum and her total tax liability is INR 83,200.

How is education cess used?

The objective of collecting education cess is manifold – 

  • To provide students with midday meals.
  • To set up government aided schools and colleges.
  • To pay the yearly salaries of staff of government schools. 
  • To pay the yearly salaries of staff of government colleges.
  • To offer education loans for students at lower rates. 
  • To fund special education related schemes.
  • To fund premier institutes like IIT and IIM including setting up of new branches.

How is cess different from regular tax?

Basis

Cess

Tax

Meaning 

Cess is regarded as tax on tax. 

Tax is the mandatory payment that an individual has to make to the government without any direct payment being accrued to the tax payer.

Appropriation 

The revenue that the government earns in the form of cess is first credited to the Consolidated Fund of India. After which it is utilised for the specified purpose it was collected for.

The revenue that the government earns from taxes like income tax is kept in the Consolidated Fund of India and the government can use it for any purposes it deems fit. The appropriation of the same must be approved by the parliament.

Sharing between centre and state

The proceeds of cess may or may not be shared with the state governments.


 

The centre has to share the tax collected as per the formula determined by the Finance Commission.

Unspent amount

The unspent amount was carried forward and used for the same purpose that it was collected for.

Since a tax is not collected for any earmarked purpose, it can be used for other purposes too.

Discontinuation of collection

It will be discontinued once the objective of collecting the cess is met.

It will continue so long as the government wishes to levy the tax.

How does it impact you as a taxpayer?

As a taxpayer, the impact that cess has is as follows – 

  • Higher cess on direct taxes increases the tax outflow.
  • Cess on indirect taxes may increase the cost of the items that it is levied on, thereby increasing the cost of living of the individual.

Conclusion 

Education has always been a top priority of the government and more so in this day and age. In order to increase the government spending on this sector and boost the overall literacy levels in the country, the education cess is being levied. 

As responsible citizens of the country, this contribution from our taxable income will go a long way in uplifting the society and ensuring that education is not a distant dream to many.

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