In the realm of taxation, a “Cess” is an additional levy that is collected on top of the basic tax liability. Governed by the Income Tax laws of India, a Cess is distinct from regular taxes and serves a specific purpose. It is often perceived as another form of tax, but its use is strictly earmarked for the welfare of a particular sector. Among the various types of Cess such as Cess on income tax, the Education Cess plays a crucial role in funding and improving the country’s educational infrastructure.
A Cess is a targeted levy collected by the government for a specific cause. Unlike general taxes, which can be allocated across various government expenditures, the revenue from a Cess is reserved exclusively for the purpose for which it was imposed. For example, a petroleum Cess is utilized solely for the improvement of petroleum exploration and refinery processes. Similarly, an education Cess is dedicated entirely to enhancing the education system in India.
Education Cess on income is a tax imposed by the government on the income tax payable by individuals and corporations, specifically aimed at funding educational initiatives. This CESS has undergone several modifications over the years to better align with the educational needs of the country.
Before 2018, the Education’s Cess was composed of two parts:
Together, these Cess accounted for 3% of the income tax payable.
However, in the Union Budget of 2018, the Education Cess was restructured and increased to 4%, now termed the “Health and Education’s Cess.” This updated Cess is not only intended to bolster educational initiatives but also to enhance the health infrastructure, particularly in underdeveloped rural areas.
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The primary goal of the Education’s Cess is to provide and finance quality education for those who cannot afford it. Initially, the focus was on primary education, but the scope has since expanded to include secondary and higher education.
Here is how the Education CECess S was structured before 2018:
This brought the total Education’s Cess to 3% of the tax payable.
Post-2018, this was replaced by a 4% Health and Education Cess, applicable from the fiscal year 2021-22 onwards. This increase was intended to address broader issues, including healthcare and educational facilities in rural and remote areas.
To better understand how the Education Cess rate is calculated, let’s consider an example.
Assume Mr. Sharma, an employee at a private firm, has a taxable income of ₹8 lakh. After deductions, his net taxable income stands at ₹6.8 lakh. Under the previous 3% Cess regime, the Cess would have been calculated as follows:
Total Education’s Cess: ₹1,950
Under the current regime, the Health and Education’s Cess is 4% of ₹65,000, which amounts to ₹2,600.
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The funds collected through the Education Cess are strictly earmarked for educational purposes, including but not limited to:
The Education’s Cess is a vital tool for the Indian government to channel funds specifically towards enhancing the country’s educational landscape. By ensuring that the revenue from this Cess is utilized only for educational purposes, the government can work towards reducing dropout rates, improving infrastructure, and making quality education accessible to all. As the Health and Education’s Cess continues to evolve, it is expected to play an increasingly important role in both educational and healthcare sectors, contributing to the overall development of the nation.
The current rate of Education CESS, which is now termed the Health and Education CESS, is 4% of the tax payable.
Yes, the Health and Education CESS is applicable to both individual taxpayers and corporations.
The funds from the Education CESS are used to improve the educational infrastructure, fund mid-day meal programs, pay salaries of government school staff, provide education loans, and support special programs aimed at making education more accessible.
No, the revenue collected from the Education CESS is strictly earmarked for educational purposes and cannot be diverted to other sectors.
Initially, the Education CESS was set at 3% of the tax payable, with 2% allocated for primary education and 1% for secondary and higher education. In 2018, this was restructured as a 4% Health and Education CESS, expanding its scope to include healthcare as well.
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