Introduction to Educational Cess
It refers to an additional tax imposed by the government on taxpayers in order to generate revenue for the primary, secondary and tertiary educational institutions. Educational cess is applicable on both individuals and corporations. The percentage of cess depends on the annual budget. Educational cess aims specifically at supporting educational programs and infrastructure.
- Purpose – The primary purpose of the education cess is to generate funds for the development of educational institutions, providing financial assistance to schools and colleges, and implementing various educational schemes. By earmarking a specific percentage of income tax for this purpose, the government aims to enhance the educational landscape and support the country’s human capital development.
As of the Union Budget for the fiscal year 2020-21, the education cess was consolidated into a single “Health and Education Cess,” which combines both education and health-related funding. The Health and Education Cess is set at 4% of the total income tax payable.
There are no changes in the “Health and Education Cess” under the 2024-25 budget.
How to Calculate Education Cess: Example
Below is a hypothetical example to help you understand the concept of cess calculation better
- Let’s consider an individual with an annual income of ₹10,00,000. After accounting for ₹1,50,000 in personal investments and insurance deductions, their taxable income is ₹8,50,000. Suppose the income tax calculated before cess is ₹80,000.
- To determine the total tax liability, we need to apply the education cess, which is 3% (combining 2% education cess and 1% secondary and higher education cess).
- This results in a cess amount of ₹80,000 multiplied by 0.03, equaling ₹2,400.
- Adding this cess to the initial tax amount gives a total tax liability of ₹82,400.
- Therefore, the individual’s total income tax liability, including the education cess, is ₹82,400.
Usage of Education Cess
Following are a few purposes for which ‘Education Cess’ is used:
- In order to provide mid-day meals to students.
- Used in construction & establishment of government schools and universities.
- To provide salaries to the government employees
- To initiate new educational programs and new facilities for students etc.
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