Income tax cess, union budget 2018There is no respite from cess for Indian taxpayers. In the Union Budget 2018, finance minister Arun Jaitley has proposed to replace the existing 3% education cess on personal income tax and corporation tax with a 4% ‘Health and Education Cess’.  This is intended to fund the education and health needs of poor and rural families.

The current 3% cess comprises 2% cess for primary education and 1% for secondary and higher education, which is levied on personal income tax and corporation tax. This was introduced in 2008. Now that has been hiked to 4% with a different nomenclature in Budget 2018. Cess is every finance minister’s favourite route to generate more revenues.

A cess on income tax is a tax on tax, like a surcharge. For instance, you pay a cess of Rs 3,000 on an income tax of Rs 1 lakh on an income of say, Rs 8 lakh. However, in case of indirect taxes, the cess was levied on the value of the service rather than the tax. Unlike a general tax, a cess is meant to be used for a specific activity, such as education. Here’s a glimpse at the surcharges and cesses, past and present.

It’s a cesspool out there

Cess On which tax How much Introduced Status now
Education Cess Income Tax 2% in 2004, 3% in 2008 2004 Increased from 3% to 4% in 2018
10% Surcharge Income Tax Income Tax above 10 lakh N/A Abolished in 2008
10% Surcharge Income Tax Income Tax above 50 lakh 2017 Exists still
10% Surcharge Income Tax Income Tax above 1 crore 2014 Increased to 15% in 2016
Swachh Bharat Cess Service Tax 0.5% of value of service 2015 Abolished by GST
Krishi Kalyan Cess Service Tax 0.5% of value of service 2016 Abolished by GST
Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.