Cess is an additional tax imposed by the Government of India over and above the basic income tax. Unlike regular income tax, which goes into the Consolidated Fund of India for general use, cess is earmarked for specific purposes such as health, education, or infrastructure.
Key Takeaways:
- Cess is levied over and above the basic income tax, and the funds are used for specific public welfare programs.
- All taxpayers in India, including individuals, HUFs, firms, and companies, are required to pay cess.
- Current cess rate is 4%, called the Health and Education Cess, and is levied on the income tax, including surcharge.
Types of Cess on Income Tax in India
Over the years, the Indian government has introduced several cesses for specific goals:
- Health and Education Cess: This is the most common cess paid by all taxpayers. It is levied at 4% on the income tax amount (including surcharge).
- Road and Infrastructure Cess: It is generally applicable to four-wheelers and heavy vehicles. It is imposed on petrol and diesel to fund road and infrastructure development.
- GST Compensation Cess: It is charged on luxury and demerit goods to compensate states for revenue loss post-GST implementation.
- Construction Workers Welfare Cess: It is a 1% cess on the cost of construction projects, directed towards the welfare of construction workers.
- Cess on Crude Oil: A 20% ad valorem cess on domestically produced crude oil and natural gas is levied to support the energy sector.
- National Calamity Contingent Duty (NCCD): Levied on products like cigarettes and pan masala to raise funds for national disaster management.
Who Needs to Pay Cess on Income Tax?
Every taxpayer in India is liable to pay cess, regardless of their category. This includes individuals, Hindu Undivided Families (HUFs), firms, companies, and others. As of now, a Health and Education Cess of 4% is levied on the total income tax payable, including any applicable surcharge.
One defining feature of cess is its exclusivity: funds collected under a cess cannot be used for any other purpose and must be carried forward if unutilized. Additionally, the central government is not required to share cess revenue with the states, unlike other taxes.
How to Calculate Cess on Income Tax?
Cess is calculated as 4% of the total income tax payable, including any surcharge. Here's a simple example:
| Particulars | Amount (₹) |
| Tax on Total Income | 4,40,000 |
| Add: Health & Education Cess @ 4% | 17,600 |
| Total Tax Payable | 4,57,600 |
This illustrates how the cess increases the total tax liability.
Conclusion
Cess serves as a focused taxation tool, allowing the government to raise funds for specific developmental and welfare objectives. It ensures that taxpayer contributions are directed toward national priorities like healthcare, education, and infrastructure. Since cess is applicable to all taxpayers and not shared with state governments, it gives the central government a flexible yet accountable means to tackle key societal challenges. Though it adds to the tax burden, it plays a vital role in India's social and economic development.