Education Cess consist of Primary Education and Secondary and Higher Education. Cess making a 3% of the tax payable. It is used to fund salaries, mid-day meals, infrastructure, special schemes and Premier educational institutions in the whole country.
What is Education Cess?
Every time when you pay taxes you will notice that the total tax which is payable by you tends to go up a small amount when it comes to final payment. This small amount can be an increase of a few percentages and is generally the education cess that is imposed on the taxes. This tax is only imposed on the tax that you have to pay and not on the income that is considered as taxable. The cess is imposed in two parts, the first is the Primary Education Cess and the second isSecondary and Higher Education Cess. This cess is a type of income tax and is ultimately governed by the IT Act. The rate of the education cess is announced by the government itself when the budget is announced for the year.
Education Cess Rate:
The rate at which the education cess is calculated is actually a combination of the two parts of cess applied on the taxable income. For the education cess, the rate is 2% of the tax payable and for the secondary and Higher Education Cess the rate is 1% of the tax payable. They together form the Education cess rate of 3% of the tax payable.
How to Calculate Education Cess:
Let us take an example of Akash. He has an annual income of Rs. 8 lakh out of which he invests Rs. 30,000 in life insurance and contributes Rs. 40,000 to a PPF account. He also makes a contribution to the Kanya Samriddhi Account of Rs. 20,000 and invests Rs. 30,000 in a pension scheme. This ultimately means that his total investments amounts to Rs. 1 lakh in a year which ultimately brings his taxable income down to Rs. 7 lakh.
Based on his investments mentioned above, the tax that he will have to pay is Rs. 65,000. On this particular tax he will pay a education cess of:
- Primary Education Cess: Rs. 1,300 at a rate of 2% of the tax payable, i.e. Rs. 65,000.
- Secondary and Higher Education Cess: Rs. 650 at a rate of 1% of the tax payable.
This means that the total education cess which will be payable amounts to Rs. 1,950 which means that the income tax due for Akash is Rs. 66,950.
Moreover, it needs to be keep in mind that as the education cess is only payable on the tax due, so if your income falls in the non-taxable bracket of the Income tax slab, then you won’t have to pay this cess.
How is Education Cess Used?
As the name only suggests, this is a cess that is collected in order to enable the government to run the education programs and schemes that can help to improve the quality and access to education in the country. The money which has been collected by the government is earmarked for the following expenses:
- This cess is used to provide student with the mid-day meals.
- It is also used for setting up the government aided schools and colleges.
- The staff of the government schools and colleges are also paid their salaries with this money.
- The government can also use this money to set up the education loans that are provided at lower rates to students to help them pay the fees for higher education.
- It can also be used to fund any special schemes like Rashtriya Madhyamik Shiksha Abhiyan which ultimately aims at making secondary education more accessible.
- The money may also be used to fund special institutes like IIT and IIMs in the setting up of more branches in states which still don’t have any access to these institutes.
If the government plans on expanding the number of educational facilities for students, then the money collected as education cess can be ultimately used to fund the programs.
Education cess is an additional impose on the general tax liability. Governments resorts to imposition of cess for meeting specific expenditure. Moreover, both corporate and individual income is at present subject to an education cess of 2%.