What is a Cess?
‘Cess’ is the short form of ‘assess.’ It is an additional tax levied by the Indian government to raise funds for specific purposes aimed at the public's welfare. It is to be paid over and above the income tax at the rates specified by the government. A cess is discontinued when the objective of such cess is met. It is to be paid only by those assessee’s who have taxable income.
What is Health and Education Cess in Income Tax?
The health and education cess is an additional tax that is levied by the Indian government to fund the education and healthcare needs of rural and below poverty line families in India. This tax is paid over and above the basic tax liability. Not just individuals but also companies are required to pay health and education cess.
The government uses the money received in the form of health and education cess to facilitate health care needs and to improve the educational infrastructure in the country, provide access to quality education and schemes like mid-day meals. It is also used to provide educational loans to low-income families.
How is Health & Education Cess(HEC) Calculated?
The total rate of HEC charged by the Indian government is 4%.
Health and education cess is calculated as a percentage of the basic tax liability computed after all the deductions as per the Income Tax Act. Let us understand this with an example -
Aman has an annual income of ₹8,00,000, ₹40,000 is his insurance premium, and ₹50,000 is his contribution towards PPF. His other investments include Sukanya Samriddhi Yojana and the National pension scheme at 5000 each.
Aman’s total investments = ₹1,00,000
Total Income = ₹8,00,000
Total Taxable Income = Total Income - Total Investments = 8,00,000 - 1,00,000 = ₹7,00,000
Mr. Aman’s basic tax liability under the old tax regime as per the Income Tax Act will be ₹52,500.
Now the cess will be calculated on ₹52,500
Education cess = ₹52,500 x 4% = ₹2,100
Total tax liability = ₹52,500 + ₹2,100 = ₹54,600
What is the Purpose of Health & Education Cess?
The health and education cess as the name suggests is collected by the government for various purposes related to the improvement of healthcare and educational infrastructure for rural and below poverty line families.
Filing an ITR is a mandatory compliance requirement for every person if his/her annual income falls within the taxable slab. Given the complexity of filing an ITR, doing it yourself can sometimes lead to errors. Therefore, it is best to take the help of a CA. Get CA assistance now!
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