Cess On Income Tax: Comprehensive Guide To Its Important Aspects

  • Published on: 21 Dec 2023
Cess On Income Tax: Comprehensive Guide To Its Important Aspects

The Central Government in India collects cess on income tax to fund specific programs or purposes. This additional tax is not permanent like general taxes and is discontinued once the required funds have been raised.

Read on to learn what is cess on Income Tax, its types, how it is different from general taxes, and more.

What is Cess in Income Tax?

Cess is a variant of tax that the Central Government levies on your basic tax (income tax) liability to raise funds for specific public expenditures. However, like other taxes, the government deposits cess on income tax in the Consolidated Fund of India (CFI) and allocates it only for the specific purpose for which it was collected.

How to Calculate Cess?

To understand the calculation of cess better, check the example provided below:

Suppose Mr X has an annual income of ₹20 lakhs with a tax liability of ₹4 lakhs. If the education cess levied by the government is 4%, his cess tax liability would be as follows-

Education Cess on Income Tax = Cess Rate X Total Tax Liability = 4/100 X ₹4,00,000 = ₹16,000.

Types of Cesses on Income Tax

The government levies different types of cesses on income tax to raise funds for various public welfare schemes. These include:

Health and Education Cess

It is a type of cess that was introduced in the Union Budget 2018. The government levies this tax to raise funds for the health and education needs of individuals belonging to the Below Poverty Line (BPL) segment.

Cess on Crude Oil

For the development of the domestic oil and natural gas blocks, the government levies an ad valorem cess. The rate of crude oil and natural gas cess on income tax is 20%.

Road and Infrastructure Cess

The Central Government also charges a road and infrastructure cess on specific excisable and imported goods transported through four-wheelers and heavy-transport vehicles. As per the latest government notification, the cess is ₹1 per litre of high-speed diesel and petrol.

Construction Workers Welfare Cess

To run welfare schemes targeting construction workers, the government raises funds through the Building and Other Construction Workers’ Welfare (BOCWW) Cess Act, 1996. Under this act, an employer needs to pay 1% of the construction cost as BOCWW cess.

National Calamity Contingent Duty

The Central Government also imposes a National Calamity Contingent Duty (NCCD) on cigarettes, chewing tobacco and pan masala. The government has increased the rate of NCCD Cess to 16% on specific cigarette brands in the Union Budget 2023.

GST Compensation Cess

The Central Government levies a GST Compensation Cess on goods of demerit and luxurious categories. This cess also subsumed the clean energy cess in tax.

Also Read: What is Income Tax Return?

Other Types of Cesses on Income Tax

Here are some other types of cesses on Income Tax that the Government of India levies:

Swachh Bharat Cess

The Central Government levied this cess on all taxable services in 2015 to raise funds for the cleanliness funds. The Swachh Bharat Cess rate is 0.5%. 

Krishi Kalyan Cess

The Government of India introduced this cess on Income Tax in 2016 for the development of agricultural activities in India. This cess in tax is applicable as service tax at the rate of 0.5% on the on-paper price of every service.

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FAQs on Cess on Income Tax

What is the cess at 4% in income tax?

The Central Government levies an education cess at the rate of 4% on income tax.

What is the cess rate in income tax?

The rate for different cesses varies depending on the government’s policies. 

Who will pay a cess tax?

Every taxpayer, liable to pay income tax, needs to pay cess on income tax.

What is the cess on income tax above ₹50 lakhs?

The cess in tax remains the same for all income brackets, which means that cess rates will remain the same if your income exceeds ₹50 lakhs.


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