What is Education Cess? From the 3% Education Cess to the 4% Health and Education Cess

What is Education Cess?

The Education Cess is a tax in India, which is imposed to help to cover the expenditures of sponsored programs or schemes by the government. The education cess was first imposed in 2004: the Union Budget 2004-05 proposed a 2% cess and earmarked the whole amount for education. The rate is a percentage of the income tax payable (plus surcharge, if any), not of your income. The Union Budget 2007-08 added a further 1% cess for secondary and higher education. Every time when you pay taxes you will see the total tax payable amount will go up tiny higher at the time of final payment. This increased percentage amount is the education tax, which is imposed in the direct taxes. From 2007 until March 2018, the cess was imposed in two parts. The first part is the Primary Education Cess and the second part is Secondary and Higher Education Cess tax. The education cess is a part of Income Tax and it is governed by the IT tax. The rate is proposed in the Union Budget and fixed every year in the Finance Act.

Education Cess imposed in India for Higher education:-

The government collects many funds to help people but there are some government funds which is provided for higher education. The governments helps many students providing funds to many of the Universities for higher education like NITs,  IITs,  AIIMs and many other educational schools and colleges. Some of the funds are funded by state government and some are funded by Center.

Uses of Education Cess:-

Since 2005, proceeds of the primary education cess have gone into a non-lapsable fund called the Prarambhik Shiksha Kosh, which is used for Sarva Shiksha Abhiyan (now Samagra Shiksha, which also supports the Right to Education Act) and the mid-day meal scheme (now PM POSHAN). A similar fund, the Madhyamik and Uchchtar Shiksha Kosh, was created for the secondary and higher education cess. The Education Cess is gathered to enable the government to run Education schemes, events and programs that helps students to access the education and to improve the quality standard of education. The Education Cess has great uses which are as given below.

• The Education Cess is used to give mid day meals to the students.
• It is also used to build government colleges and schools.
• The salaries of the staff of the government is paid by this money.
• The government uses this money in education loans too which are provided at the cheapest price so that students can access to higher education.
• The government uses this fund or money in many great things like the Rashtriya Madhyamik Shiksha Abhiyan which ensures the secondary education will be more accessible to the students.
• It is used in many prestigious institutes to set up more branches in the country like IIM and IIT and many other educational institutes.
• The government uses this money to extend the educational facilities to the students.
• The government uses this fund to give facilities like free books, uniforms and cycles to the rural students or children.
• This fund is used in infrastructure of educational buildings like to improve the infrastructure like CCTV, Wi-fi, smart or digital boards, projectors or big screen and online fee payments of the government schools, colleges and Universities.

What is Education Cess rate?

The education cess is calculated at particular rate. The Education Cess is applied to the income tax payable (including any surcharge), not directly to the taxable income. Until financial year 2017-18, the rate was 2% for Education Cess of the tax payable and the rate is 1% for Secondary and Higher Education Cess of the payable tax. So after combining, the rate was 3% of payable tax for the Education Cess.

How you can calculate Education Cess?

Lets take an example of Pawan under the old (pre-2018) rates. Suppose Pawan’s income tax for the year, after deductions and rebates, works out to Rs 60,000 (the figure is only an illustration). On this rs 60,000 of tax, he will pay Education cess of:-

Primary Education Cess: Rs. 1,200 at a rate of 2% of the tax payable, i.e. Rs. 60,000.
Secondary and Higher Education Cess: Rs. 600 at a rate of 1% of the tax payable of rs. 60,000.
This means that the total education cess that will be payable will be Rs. 1800 which means that the income tax due for Pawan is Rs. 61800. Under today’s 4% Health and Education Cess, the same Rs. 60,000 of tax attracts a cess of Rs. 2,400, so the total becomes Rs. 62,400.

Budget of 2018: Government proposes 4% on Education Cess

Before this change, the rate of education cess was 3% for combining 2% for primary education and 1% for Secondary and Higher Education which is imposed on corporation tax and personal income tax. But apart from that, there were other announcements for students in the 2018 budget. In his Budget speech of 1 February 2018, Union Finance Minister Arun Jaitley proposed a 4% ‘Health and Education Cess’  for educational and health requirements of rural and needy families. He has proposed to replace the existing education cess of 3% on corporation tax and personal income tax. He said that they will collect additional amount of rs 11,000 crores from that.  According to him, that there will be improvement in quality of education, teacher and digital initiatives.

The Finance Act, 2018 received the President’s assent on 29 March 2018, and the 4% Health and Education Cess has applied from financial year 2018-19. The rate is still 4%: the Finance Act, 2026 (assented on 30 March 2026) continues it.

How does it impact on taxpayers?

Well, Education Cess tax is different from normal taxes. It is a very good tax for common people as it will give great results. Well there will be increase in tax on direct taxes so it will impact on most of the things in our daily life. It will impact our daily life because the cost of living will also increased by increase in tax. The cost of various product will be increased that affects common man. For example: The infrastructure cess increase cost of motor vehicle then the companies will increase the cost of motor vehicle and then it will put load on customer pockets. There will be hike in prices of many product like cars, bikes and on many other products. Since financial year 2018-19, taxpayers pay 1 percentage point more as cess (4% instead of 3% of their income tax and surcharge), now called the ‘Health and Education Cess’.

What changed since this article was first published

• The 2% Education Cess and the 1% Secondary and Higher Education Cess were replaced from financial year 2018-19 by a single 4% Health and Education Cess (Finance Act, 2018). The 4% rate continues under the Finance Act, 2026.
• The cess is calculated on the income tax plus surcharge, not on income.