Cess and Surcharge – Tax Levied by Indian Government
What is CESS?
The government generally collects cess to fund earmarked purposes. It cannot be used for any other purpose. The government has the power to introduce, remove, and alter a cess at any point of time. Let us look at some examples below.
Example of CESS
Health and education cess, Swachh Bharat cess, road and infrastructure cess, and cess on exports are some common forms of CESS that the government levies.
What is Surcharge?
A surcharge is charged on the income taxes paid. It is usually paid by taxpayers, whether individuals, association of persons, or companies, who fall in a particular tax bracket. This is levied on the income tax payable and not on the taxable income. Let’s understand it better with some examples below.
Example of Surcharge
As mentioned above, the surcharge imposed will depend on the income tax bracket in which a taxpayer falls.
For example, if the net income of an individual is less than ₹50 Lakh in a year, then the surcharge imposed is nil.
If, on the other hand, the net income is more than ₹50 Lakh but less than ₹1 Crore, then the applicable surcharge is 10%.
Similarly, if the net taxable income of a domestic company is more than ₹1 Crore but less than or equal to ₹10 Crore, the applicable surcharge is 7%.
Let us now look at an interesting update from Union Budget 2022:
Did You Know?
In Union Budget 2022, the government proposed to reduce the highest surcharge rate applicable on the income tax payable by individuals, Hindu Undivided Families (HUFs), association of persons (AOPs), artificial judicial persons, and body of individuals (BOIs) from 37% to 25% under the new tax regime. This will become effective from 1st April, 2023.
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Difference Between CESS and Surcharge
Cess and surcharge are taxes collected by the union government. However, there are subtle differences between cess and surcharge as follows:
| Surcharge | Cess |
| The surcharge goes to the Consolidated Fund of India (CFI) and can be spent on any purpose the government deems fit. | Cess goes to CFI but can be used for a specific purpose only. |
| Since the surcharge is applicable on the net income tax payable, it is applicable only on taxpayers who fall in a particular tax bracket (usually high-earning entities) | Cess is paid by everyone. |
| Authorities levy a surcharge only on one’s net tax payable. | Cess is a tax on tax. So, it is applicable on all forms of tax, including direct and indirect taxes. |
Similarities Between CESS and Surcharge
As discussed above, cess and surcharge are not the same. However, there are some similarities as follows:
- Only the union government has the authority to levy both cess and surcharge.
- State governments do not get a share of either.
- Both these taxes get deposited into the Consolidated Fund of India (CFI)
Final Word
Cess and surcharge are collected by the Government of India as a source of revenue to fund its functioning. While cess is used for specific purposes, surcharge, collected on the next tax paid by an entity, can be used for any purpose, seen fit by the government. Ultimately, the aim is to use the tax collected to better the living conditions of the economically weak and the marginalised sections of the society.
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FAQs
A payment card surcharge fee is an additional amount that the business merchant charges on the customer’s bill if he/she makes the payment through a card. This fee is also known as the checkout fee.
Marginal relief is supposed to provide some consideration on the levied additional tax like a surcharge on a taxpayer whose income exceeds the margin of Rs. 50 lakh. The idea of marginal relief is to ensure that the increase in a taxpayer’s income tax should not exceed the increase in the total income of the same.
Ans: Tobacco and tobacco products come under GST with a percentage of 28% and an additional cess of up to 21%. Other than this, if the Central Government decides, it can levy Central Excise Duty on these products.
GST is an indirect tax and is a great source of revenue for the government. Both the Central and state governments have their duties to perform for which they need sufficient funds and can apply specific tax rates through GST.
Income earned in farming or agriculture business is exempt from tax in India under Section 10(1) of the Income Tax Act, 1961. Poultry and cattle rearing also come under farming and are therefore tax-free.
Read More on Income Tax Act
