Difference between Surcharge and Cess Of The Income Tax
If you are going to file income tax, you will come across terms like cess and surcharge. These are both parts of the income tax. Although many think these are similar, it is essential to know that they are different. These taxes have pre-determined and specified tax rates.
Here’s all about the differences between cess and surcharge.
What is Surcharge?
Surcharges are charged on taxes already paid. It is a tax collected on any tax. Not every earning individual has to pay a surcharge. Usually, surcharges are applicable only to those individuals and HUFs who come with a high annual income. This is levied on the payable income tax and not on the taxable income.
Purpose of Surcharge Collection
Any kind of tax paid to the government is a source of income for the government. The rich and super-rich category of people is required to pay a surcharge on their income tax. The purpose of levying surcharge is to receive more tax from the privileged class of the society and thereby use the amount for the upliftment of the poorer sections.
Who Pays Surcharge?
Previously surcharges used to get applied only to businesses. But in the Union Budget of 2017, the Union Finance Minister declared that a 10% surcharge is applicable to those whose income ranges between Rs. 50 lakh to Rs. 1 crore per annum. And those with an income of more than Rs. 1 crore will have to pay a 15% surcharge on their income tax. In addition, people paying the surcharge also have to pay 3% Cess (2% Education Cess + 1% Higher Secondary and Secondary Education Cess). Other than these, foreign corporate companies with an income between Rs. 1 crore to 10 crores pay a 2% surcharge, and those exceeding Rs. 10 crores pay a 5% surcharge.
Also Read: What is Global Minimum Corporate Tax Rate: Aims & Countries Involved
What is Cess?
The government collects cess to fulfil a particular pre-decided purpose and can be used for that purpose only. A cess can be introduced and removed at any time. If the government feels that enough funds have been collected through the taxes, it can abolish the cess.
Some examples of cess include agriculture cess, Education cess, Secondary and Higher Education cess and more.
Purpose of Cess Collection
The government introduces a cess when there is a need for funds for a specific purpose. Cess collected from citizens goes directly to the CFI (Consolidated Fund of India). Government can use the collected tax for various purposes. Every penny that is received from a cess will be used for the particular purpose that the cess was meant for. In case of an excess fund, the government will use the remaining money for any purpose that it deems fit.
Also Read: Income Tax Slabs In India For FY 2022-23: New Tax Regime Vs Old Tax Regime
Who Pays Cess?
Cess applies to direct and indirect taxes and to every individual paying tax in India. Therefore, notwithstanding any amount of tax generated, one has to pay Cess on the tax.
Types of Cess in India
At present, there are nine types of cess. However, the introduction of the Goods and Services Tax (GST) in 2017 eliminated most of the cess levied previously.
- Health and education Cess
- Cess on Exports
- Cess on Crude Oil
- Road and Infrastructure Cess
- GST Compensation Cess
- Other Construction Workers’ Welfare Cess
- Cess on tobacco and tobacco products
- National Calamity Contingent Duty
- 5% health cess on imported medical devices as introduced by Finance Minister Nirmala Sitharaman in the Finance Bill 2020-2021.
Surcharge vs Cess
Even if they are both parts of the income tax, cess and surcharges are easily differentiable. Some basic differences are discussed in the table given below:
| Surcharge | Cess |
| The surcharge goes to CFI and can be spent for any purpose. | Cess goes to CFI but can be used for a specific purpose only and not for any other cause. |
| Only the rich and super-rich category of people pays the surcharge. | Every taxpayer pays cess. |
| Authorities levy a surcharge only on one’s total tax amount. | Cess calculation takes place on both the total tax and the surcharge. |
Final Word
Although there are differences between surcharge and cess, there are also similarities. Both of the collected taxes go to the Consolidated Fund of India. The Central Government is not required to give the details of the surcharge and cess collected to the state governments.
If you fall within a higher tax bracket, make sure to be aware of the surcharges that you need to pay.
FAQs on Differences between Surcharge and Cess
Ans: 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.
Ans: 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.
Ans: 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.
Ans: 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.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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