Education Cess

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  • 22 Feb 2023
What Is Education Cess On Income Tax?

When you give pocket money to your kids, they always ask for something extra over and above what you’ve given them. Pretty much the same way, the Government charges you a “little extra” over and above the income tax that you are liable to pay.

Each time people make their tax payment, they notice that the total amount of tax payable by them tends to rise slightly while making the full and final tax payment. This small amount could be a few percentage increase, which is usually an education cess charged levied on taxes. This particular tax is charged only on the amount of tax that needs to be paid instead of the entire taxable income. This cess is charged in two distinct parts, and while the 1st part is levied as Primary Education Cess, the 2nd part is charged as Secondary and Higher Education Cess. Education cess on income tax is governed by the IT Act and the rate for education cess in India is declared by the country’s government each year at the time of the budget.

Education cess rate is calculated at a rate which is basically a mix of two different kinds of cess that is charged on the taxable income. While the rate for education cess is 2 percent of the payable tax, the Secondary and Higher Education cess is 1 percent of the tax amount. So, totally, the rate of education cess is 3 percent of the amount of tax.

In order to calculate education cess, let’s assume that a person who earns Rs 8 lakhs annually invests around Rs 30,000 in purchasing a life insurance policy and later contributes around Rs 40,000 into the PPF account. This person also contributes money towards opening a Sukanya Samriddhi account by investing Rs 20,000 and Rs 30,000 for purchasing a pension policy/scheme. Hence, he invests a total amount of Rs 1 lakh on an annual basis that brings the total amount taxable to Rs 7 lakhs. On the basis of the investments that he has made, the taxation amount that he’ll be paying is Rs 65,000. Hence, the amount of educational cess that he will be paying on the tax would be:

  • Primary Education Cess: Rs 1,300 levied at the rate of two percent of the amount of tax that needs to be paid (i.e. Rs 65,000).
  • Secondary and Higher Education Cess: Rs 650 at the rate of one percent of the amount of tax that needs to be paid.

Thus, the education cess that needs to be paid in total shall be Rs 1,950 and the amount of income tax that would be due for the person would be Rs 66,950. But, it must be noted that the education cess needs to be paid only the tax amount that is due and if the income comes under non-taxable slab of the IT taxation slab, then you don’t need to pay the cess amount.

Education cess is used by the government for running different educational schemes and programs, which helps it improving the access to quality education within the nation. The government collects the money to fund below mentioned expenses:

  • To offer mid day meals to students.
  • Establishing government supported colleges and schools.
  • The members of the staff at these government colleges and schools are paid their monthly salaries through the money gathered as cess.
  • The money can be utilized for funding specialized schemes such as the Rashtriya Madhyamik Shiksha Abhiyan, which aims to make secondary education easily accessible.
  • It can be utilized for funding leading institutes such as the IIM and the IIT for establishing additional branches in the states where these institutes are still not present.
  • The funds gathered through educational cess are also used by the government for funding programs that further helps them in enhancing educational benefits or facilities for students.
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