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written by Khatabook | November 22, 2021

Education Cess - Definition and Meaning

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So, what is Cess? A cess is a tax that is collected for the benefit of a specific industry. It has limitations in terms of what it can be used for. This is the fundamental distinction between a tax and a cess tax. Taxes can be utilised wherever they are needed, but a cess will only be used for the purposes for which it was collected. As a result, a petroleum cess is beneficial to petroleum exploration and refineries. A 'green' cess is only utilised for environmental purposes, and so forth. In a similar vein, an education cess is a tax levied to benefit our country's educational system. 

What are the types of Cess tax?

There are several types of Cess tax. Some of them have been given below:

  • Swachh Bharat Cess: A 0.5% levy on all taxable services is levied to help achieve the "Swachh Bharat Abhiyaan" goals.
  • The Krishi Kalyan Cess: It is a 0.5%  surcharge imposed on all services subject to service tax to assist the country's development of better agricultural facilities.
  • Infrastructure Cess: This tax is charged on vehicle production. Depending on the type of vehicle, the charge varies between 1% and 4%. This Cess will be used to fund infrastructure initiatives.
  • Health and Education Cess: This tax is levied on the total tax due and is used to promote improved health and education to persons living below the poverty line (BPL) and in rural areas. The rate is fixed at 4%.

What is the difference between Cess Tax and Normal Tax?

Cess tax is distinct from other government-collected taxes such as income tax, excise duty, and goods and services tax. Some of the key differences are:

Normal Tax

Cess tax

The money received from regular taxes goes into India's Consolidated Fund, which can be used for various purposes. 

Cess tax is a different type of tax, and while it may be credited to the Consolidated Fund of India at first, it must be utilised for the purpose for which it was collected in the end.

 

For example, education cess must be used solely for educational purposes. If the funds are not utilised for that purpose, they must be carried forward and used the following year. The money cannot be used for any other purpose by the government. 

The normal tax process has several steps.

The government also uses cess because it is simple to establish, change, and remove, 

Changes to regular tax need legislative modifications.

Changes to cess can be communicated by a notification.

One thing to keep in mind is that the federal government has implemented a variety of cesses, none of which are computed in the same way.

Also Read: Claiming Deduction on Interest under Section 80TTA of Income Tax Act

What is Education Cess?

  • The government imposes an Edu cess on the primary tax liability to raise additional income to fund primary, secondary, and higher education. This is an additional levy.
  • Corporations, like individuals, are obligated to pay this cess every year at rates specified during yearly budgets.
  • The government will put this money toward upgrading the country's educational infrastructure and increasing access to high-quality education. 
  • The educational cess is used to fund expenses such as midday meals, opening new Government schools and colleges, educational loans for deserving candidates from low-income backgrounds, salaries for staff and faculty members working in Government-funded educational institutions, and specialised schemes. 
  • The education cess rate was previously 3%, but it was changed to 4% in 2018.

Pre and Post 2018 Scenario of Education Cess

In the 2018 Union Budget, the clause for educational cess was somewhat changed. For a better understanding, consider the pre-2018 scenario first, then the current scenario.

Pre Scenario of Education Cess

Post Scenario of Education Cess

Before 2018, there were two parts to this cess: a primary education cess and a secondary and higher education cess. Both of these elements were utilised to strengthen and modernise India's developing education sector.

Cess is never removed from a person's pay, including the education cess. Instead, it is deducted from their tax liability. Even corporations are required to pay this tax every year, at rates decided during annual budgeting. As a result, the education levy on income tax is a good description of this additional outflow.

Before 2018, the total education cess was set at 3% of an individual's taxable income. For many years, this had been the standard.

The Central Government increased this cess to 4% of all taxes paid by individuals and corporations in 2018. The name Health and education cess was given to this enhanced cess. As is clear, the additional funds raised will be used to improve the health and educational facilities of far-flung villages and small towns where suitable schools are lacking.

  • Individuals will find that a modest amount is taxed each year over and beyond their baseline tax output if they examine tax payments over the last decade. 
  • This sum is mainly made up of many cesses, one of which is an education cess. 
  • A health and education cess is more valuable than its predecessor in many ways. According to surveys, a shortage of high-quality mid-day meals is the leading cause of school dropouts. 
  • The 4% cess, which will be implemented across India, is projected to have enough clout to alleviate dropouts and contribute to an increase in India's literacy rate from the current 77.7%

Utilisation of Funds Collected through Education Cess

As the name implies, this is a tax collected to aid the government in conducting education programs and initiatives that will help improve the country's educational quality and access. The money received by the government will be used to cover the following costs:

  1. The cess is used to offer mid-day meals to students.
  2. It is used to open government-sponsored schools and colleges.
  3. This money is used to pay the salaries of the employees at government schools and colleges.
  4. The government might also use this money to set up education loans with lower interest rates to assist students in paying for higher education.
  5. It can also fund unique initiatives such as the Rashtriya Madhyamik Shiksha Abhiyan, which attempts to make secondary education more accessible.
  6. The money might also be utilised to help elite institutes like IIT and IIM open more branches in states where these institutions are currently unavailable.
  7. If the government wants to increase the number of educational facilities for children, the education cess money can be utilised to pay for the programs.

Health and Education Cess tax calculation

The Health and Education Cess is calculated at 4% of the total tax liability. 

For example, if a person aged 50 years has an income of Rs. 8 Lakhs. The total tax liability will come to Rs. 72,500 (2.5 Lakh*5% 3 Lakh*20%). So Health & Education Cess will be charged @ 4% on this total tax liability of Rs. 72,500. Thus Health & Education Cess will be Rs.72,500*4% = Rs. 2900.

Also Read: How To Check Income Tax Refund Status Online For 2020-21

Conclusion 

Education cess plays a significant role for attaining revenue to fund primary, secondary, and higher education. This positively impacts in enhancing the level of education in our country. With the introduction of the Health & Education cess of 4%, its importance in funding these fundamental sectors can be understood. 

We hope this article has given you all the important insights related to the education cess, the difference between cess and normal tax, Pre and Post 2018 scenarios, and how to calculate education cess. 

Download the Khatabook App for more such useful information. Moreover, with this app you can manage your business with ease, give payment reminders and accept payments through this app in a secured manner.

FAQs

Q: What are some of the uses of funds collected as Education Cess?

Ans:

Some of the uses have been mentioned below -

  • The cess is used to offer mid-day meals to students.
  • It's also used to open government-sponsored schools and colleges.
  • This money is used to pay the salaries of the employees at government schools and colleges.
  • The government might also use this money to set up education loans with lower interest rates to assist students in paying for higher education.

Q: Are the cess removed from a person's salary?

Ans:

The cess including the education cess is never removed from a person's pay. Instead, it is deducted from their tax liability.

Q: Where will the funds raised through Health and Education Cess be utilised?

Ans:

The funds raised through health and education cess will improve the health and educational facilities of far-flung villages and small towns lacking suitable schools.

Q: What are the different types of cess?

Ans:

The different types of cess include the following - The Krishi Kalyan cess, Swachh Bharat Cess, health and education cess, and Infrastructure Cess. 

Q: What is the difference between a cess and a tax?

Ans:

The fundamental difference between a tax and a cess is that taxes can be utilised wherever needed, but a cess will only be used for the purposes for which it was collected. The cess is collected for a specific industry. 

Q: What is the new name given to the education cess post-2018?

Ans:

The new name given to education cess is Health and Education Cess. 

Q: What is the new rate of education cess after 2018?

Ans:

The new rate of education cess is 4%

Q: What was the rate of education cess before 2018?

Ans:

The rate of education cess before 2018 was 3%, which comprised 2% primary education cess and 1% secondary and higher education cess. 

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.