Who Needs to Pay Cess and Why?

Who Needs to Pay Cess and Why?

7 mins readComment
Jaya
Jaya Sharma
Assistant Manager - Content
Updated on Jan 10, 2024 18:37 IST

Cess is a type of special tax that is levied in addition to an existing tax. Central government raise funds for specific purpose as cess. Unlike regular taxes that go into the government's general fund, cess is collected to raise money for a particular goal or project. For example, a government might add a cess to income tax to gather funds specifically for improving educational facilities or healthcare services.

cess on income tax

 

Table of Contents

What is Cess?

Cess is levied to ensure dedicated funding for crucial areas that require focused attention and investment. By earmarking these funds through cess, the government can channel resources directly towards specific initiatives, such as enhancing public health infrastructure or supporting educational development. This method helps in addressing specific societal needs more efficiently, as the funds are not diverted for general expenditure but are used exclusively for their intended purpose.

Types of Cess

There are different types of cess that are levied in different industries:

1. Educational and Health Cess on Income Tax

"Cess on income tax" is an additional levy that you pay on top of your regular income tax in India. It is not one single charge, but consists of two separate components including health and education cess on income tax.

  • Education Cess (3%): This education champion empowers future generations by funding primary and secondary education infrastructure, teacher training, and scholarships. Imagine classrooms buzzing with activity, libraries brimming with knowledge, and scholarships unlocking opportunities for deserving students – that is the magic of the education cess.
  • Health Cess (4%): This guardian of well-being strengthens public healthcare across India. Rural healthcare initiatives, upgraded medical facilities, and critical public health programs all benefit from this crucial levy. Picture rural communities receiving medical attention, mothers accessing prenatal care, and vulnerable populations protected from disease – that is the impact of the health cess.

2. Cess in GST

This temporary levy bridges the gap in revenue lost due to the implementation of GST for states. Primarily imposed on luxury and demerit goods and services, it acts as the safety net for smoother financial transitions for states. Think of it as ensuring states can continue providing essential services and infrastructure during this tax reform transition.

Goods

GST Compensation Cess

Cut tobacco

0.14 ₹ per unit

Unmanufactured tobacco (along with lime tube) - with a brand name

0.36 ₹ per unit

Unmanufactured tobacco (excluding lime tube) – featuring a brand name

0.36 ₹ per unit

Branded tobacco refuse

0.32R per uni

Tobacco   extracts   and   essence  with  brand name

0.36 ₹ per unit

Tobacco  extracts and essence without brand name

0.36 ₹ per unit

Jarda scented tobacco

0.56 ₹ per unit

Filter khaini

0.56 ₹ per unit

Cheroots and Cigar

21% or 4170 per thousand (whichever higher)

Cigarillos

21% or  ₹ 4170 per thousand (whichever is higher)

Cigarettes with tobacco but without filter cigarettes, of length less than 65mm

5% + 2076 per thousand

Cigarettes containing tobacco apart from filter cigarettes, of length between 65mm - 75mm

5% + 3668 per thousand

Filter cigarettes of length including the  filter lenth (filter length being 11 millimetres or  its   actual   length,   whichever   is   more)  not more than 65 millimetres

5% +  ₹2076 per

thousand

Filter cigarettes (with the length of the filter, length of filter should be 11 millimetres or its actual length, whichever is more) more than 65 millimetres but not more than 70 millimetres

5% +  ₹2747 per

thousand

Filter cigarettes (including length of filter, length of filter should be 11 millimetres or its actual length, whichever is more) exceeding 70 millimetres but not more than 75 millimetres

5% +  ₹3668 per

thousand

Cigarettes of tobacco substitutes

₹4006 per thousand

Cigarillos of tobacco substitutes

12.5% or  ₹ 4,006 per thousand whichever is

higher

Smoking mixtures for cigarettes and pipes

290%

Branded ‘gudaku’ or ‘hookah’ tobacco

0.36 ₹ per unit

Tobacco consumed for  smoking  ‘hookah’ or ‘chilam’. Popularly known as ‘hookah’ tobacco  or ‘gudaku’ without brand name.

0.12 ₹ per unit

Other  water  pipe  smoking  tobacco  without brand name

0.08 ₹ per unit

Other smoking tobacco with brand name

0.28 ₹ per unit

Other smoking tobacco without a brand name

0.08 ₹ per unit

Reconstituted or homogenised tobacco with brand name

0.36R per uni

Chewing tobacco (without lime tube)

0.56 ₹ per unit

Chewing tobacco (with lime tube)

0.56 ₹ per unit

Preparations with chewing tobacco

0.36 ₹ per unit

Pan masala (gutkha) with tobacco

0.61 ₹ per unit

All goods containing tobacco ‘gutkha’, with brand name (excluding pan masala)

0.43R per

unit

All goods containing tobacco ‘gutkha’ without brand name (excluding pan masala)

0.43R per

unit

Snuff

0.36 ₹ per unit

Preparations containing snuff

0.36 ₹ per unit

Ovoids, coal, briquettes, and similar solid fuels that are manufactured from lignite, coal, whether or not agglomerated. Should not include peat (including peat litter), jet [whether or not agglomerated]

₹400 per tonne

Aerated waters

12%

Lemonade

12%

Others

12%

Motorcycles of engine capacity exceeding 350 cc

3%

Aircrafts (including helicopters, etc.) for personal use

3%

Yacht and other vessels for pleasure or sports

3%

Motor vehicles for the transport of maximum 13 persons, including the driver

15%

Motor vehicles (except three-wheelers, ambulances and vehicles of engine capacity of maximum 1500cc and maximum length 4000 mm, including spark-ignition internal combustion reciprocating piston engine as well as electric motor as motors for propulsion or with both compression-ignition internal combustion piston engine [semi-diesel or semi diesel] and electric motor as motors for propulsion

15%

Petrol, LPG or CNG driven motor vehicles of engine capacity not more than 1200cc and of maximum length 4000mm.

1%

Diesel-driven motor vehicles of engine capacity not more than 1500cc and of maximum length 4000mm.

3%

Motor vehicles of 1500 cc as maximum engine capacity.

17%

Motor vehicles of engine capacity exceeding 1500 cc (except motor vehicles) specified against entry at S. No 52B

20%

Motor vehicles of engine capacity over 1500cc which is also known as Sports Utility Vehicles (SUVs). This includes utility vehicles.

22%

Explore GST courses

3. Other Specific Cesses

  • Krishi Kalyan Cess (0.5%): This agriculture champion supports farmer welfare initiatives, rural infrastructure development, and agricultural research. Imagine improved irrigation systems, better access to markets, and technological advancements boosting agricultural productivity – that is the power of the Krishi Kalyan Cess.
  • Swachh Bharat Cess (0.5%): This cleanliness crusader promotes sanitation and hygiene across India. Think cleaner streets, public sanitation facilities, and waste management initiatives – that is the impact of the Swachh Bharat Cess.
  • Crude Oil Cess ( ₹210 per tonne): This infrastructure powerhouse utilizes a fixed charge per tonne of crude oil to fuel road and highway projects. Imagine smoother commutes, increased connectivity in rural areas, and boosted economic activity – that is the legacy of the crude oil cess.
  • Road Cess (1%): Every litre of petrol and diesel contributes to this national highway champion, paving the way for smoother, more efficient transportation networks. Picture shorter travel times, reduced logistics costs, and enhanced economic opportunities – that is the impact of the road cess.

Who Needs to Pay Cess?

The following types of entities need to pay cess:

1. Cess on Income Tax

Cess on Income tax is paid by the following entities:

  • Individuals and Hindu Undivided Families (HUFs): Everyone with a taxable income exceeding  ₹ 50 lakh per year will pay a 10% surcharge on the income exceeding  ₹ 50 lakh (includes both Education Cess and Health Cess).
  • Domestic Companies: Companies with net profits exceeding  ₹ 1 crore pay a 7% surcharge on the income exceeding  ₹ 1 crore.
  • Foreign Companies: Two different rates apply: 2% on annual income exceeding  ₹ 1 crore and 5% on income exceeding  ₹ 10 crore.
  • Partnership Firms: Firms with total income exceeding  ₹ 1 crore pay a 12% surcharge on the income exceeding  ₹ 1 crore.

2. Cess on Goods and Services Tax (GST)

  • Consumers: The cess is included in the final price of specific goods and services categorized as luxury or demerit items. You pay the cess indirectly when you purchase these items.
  • Importers: In some cases, a separate cess is levied on imported goods. The importer is responsible for paying this cess before clearing customs.

3. Other Types of Cess

  • Crude Oil Cess: Oil producers and importers, not individual consumers, are responsible for paying this cess.
  • Road Cess: This cess is already included in the price of petrol and diesel, so consumers indirectly pay it when they purchase fuel.

Why are Cess and Surcharge Levied Separately?
Why are Cess and Surcharge Levied Separately?
Both cess and surcharge are additional taxes but are different fundamentally. These terms can be confusing for those who are filing their first income tax. Let us understand what these...read more

Demystifying Surcharge on Income Tax: What is It?
Demystifying Surcharge on Income Tax: What is It?
When any taxpayer comes under an income tax rate above 30%, the taxpayer is liable to pay an additional surcharge over income tax liability. The government levies surcharge where high...read more

FAQs

What is the 4% cess on income tax?

Central government levies education and health cess of 4% on income tax, applicable regardless of the tax slab​​.

How is cess on income tax calculated?

Cess on income tax is calculated nased on your total taxable income after applicable deductions. If there's a surcharge due to income exceeding Rs. 50 Lakhs, it's also included in the cess calculation. Surcharge rates vary based on your annual income​​.

Who pays cess tax?

Cess tax is collected from every single eligible taxpayer over their regular tax liabilities​.

What is infrastructure cess?

Infrastructure Cess is a tax on the production of vehicles, with rates varying based on the type and capacity of the vehicle. The revenue is used for funding infrastructural projects throughout the country​.

 

About the Author
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Jaya Sharma
Assistant Manager - Content

Jaya is a writer with an experience of over 5 years in content creation and marketing. Her writing style is versatile since she likes to write as per the requirement of the domain. She has worked on Technology, Fina... Read Full Bio