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What is Education Cess and Why Higher Education Cess Tax Imposed in India?

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 tax was imposed in 2004. The rate of tax is 2% of income tax that is the amount of payable tax. It is collected independently of other taxes and it is given to help to all Indian citizens. 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. The cess tax is 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. At the time of announcing budget of the year, the rate of education cess tax is announced by the government.

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.

Lets take an example:-
It takes at least 3.5 lac to education an IITian every year but student has to bear only rs. 80000-100000 per year. The rest amount of education is bear by the government. So a student save up to 2.5 lac per year. The rest amount is actually paid by the tax payer. So if you will calculate the amount of all students of IITians that is approx 40000 students then approx 1000 crores is bear by tax payer to educate the students.

Uses of 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 tax is applied to the taxable income. The rate is 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 is 3% of payable tax for the Education Cess.

How you can calculate Education Cess?

Lets take an example of Pawan. Pawan has annual income of rs 7 lac. So based on his income, he has to pay rs 60,000 of tax. 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.

Budget of 2018: Government proposes 4% on Education Cess

At present, the rate of education cess is 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 are some announcements in the budget of education. It is been said that the Union Finance Minister Arun Jaitely has proposed 4% of ‘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.

Budget of Finance 2018 was approved in parliament house and it has received President’s assent. It was enacted on 29 March 2018. Now Health and education cess will be imposed in financial year 2018-19.

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. Now everyone has to pay 1% additional tax on direct taxes from financial year 2018-19 as ‘Health and Education Cess’.