Remember the socialists’ argument favouring more taxes on the rich to fund welfare programmes for the poor. Well, one way the government achieves this objective is through surcharges. Simply put, surcharge is tax on tax. It is levied on the income generated but on the tax payable for that income. Let us understand through an example.
Say you have an income of Rs 100, on which you have to pay Rs 30 as tax. So the surcharge will be 10% on the 30 rupees tax that you have to pay, i.e. Rs 3.
In India, a surcharge of 10% is levied if an individual’s net income is more than Rs. 50 lakhs and a surcharge of 15% is levied if the individual’s income is more than Rs 1 crore. In case of companies, it is levied at different rates for domestic and foreign companies.
Now, let us find out what the cess is. Unlike surcharge, there is no threshold for the health and education cess. Every individual liable to pay income tax has to also pay the health and education cess at the rate of 4% on the tax including surcharge.
A cess is collected by the government for the development of a particular service or sector.
So, as the name suggests, the health and education cess cannot be used for any other means.
This cess was introduced in Union Budget 2018 by then finance minister Arun Jaitley, who replaced the earlier secondary and higher education cess of 3%.
There are a slew of cesses for various purposes. Education cess was proposed to fund the free primary education and midday meal. Health cess was imposed to meet the health requirements of below-poverty-line families. We all have heard the debates surrounding the high cess on fuel. Then the clean energy cess, which was introduced in 2010. Krishi Kalyan cess was introduced in 2016 to provide additional support to farmers for agricultural activities. While the Swachh Bharat cess was introduced in 2014.
Last year, the Uttar Pradesh government had introduced “Corona cess” on liquor. After this, the prices of liquor were increased by Rs 10-40 per bottle.
In a recent interaction with Union Finance Minister Nirmala Sitharaman, Tamil Nadu’s finance minister Palanivel Thiaga Rajan suggested merging all the “cesses and surcharges” into basic rate of taxes. His complaint was that the states were not getting their due shares in tax revenues.
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