Cess On Income Tax: Types, how to file and calculate

Cess is an additional tax imposed by the government over and above the regular tax liability to fund specific projects or initiatives. It is levied to finance particular expenditures such as education, healthcare, or infrastructure development. The imposition of cess is typically temporary and aimed at addressing urgent funding requirements for designated projects. In the context of income tax, cess serves as a means for the government to collect revenue for specific purposes outlined in the annual budget.

There are various types of cess on income tax, each serving a distinct purpose and levied at different rates. Some common types of cess include:

The following points highlight the difference between cess and tax:

• Cess is levied over and above the applicable tax rate.
• Unlike some taxes, which must be distributed proportionately, the cess levied by the central government is not necessarily shared with the states.
• The government can use taxes as it sees fit. However, the use of cess is limited to the stated purpose of collection.
• Compared to general taxes that require revision of existing tax laws, cess is simpler to introduce, change, and abolish.

Filing cess on income tax follows the same procedure as filing regular income tax returns. Taxpayers are required to calculate their total tax liability, including cess, based on their taxable income and applicable tax rates. The cess amount is then added to the total tax liability, and the taxpayer must pay the combined amount to the government within the stipulated deadline. The same course applies to the GST compensation cess as well where the eligible taxpayers must login to the GST portal for the very purpose.

Taxpayers can file their income tax returns online through the government's official income tax portal or seek assistance from authorised tax professionals. It is essential to accurately calculate and report the cess amount to avoid penalties or legal implications.

The calculation of cess on income tax depends on the applicable cess rate and the taxpayer's total tax liability. Cess is typically calculated as a percentage of the total tax payable after accounting for deductions, exemptions, and other adjustments.

For example, if the applicable education cess rate is 4% and the taxpayer's total tax liability is Rs 50,000, the cess amount would be calculated as follows:
Cess = Total Tax Liability * Cess Rate
= Rs 50,000 x 4%
= Rs 2,000

The taxpayer would then add the cess amount of Rs 2,000 to the total tax liability and remit this combined amount to the government.