Education Cess - Funding India's Educational Advancement

In Indian taxation, a cess is an additional levy imposed on top of a taxpayer's basic tax liability. Unlike regular taxes that can be used for various government purposes, a cess is earmarked for a specific sector. The education cess is one such levy dedicated to improving India's education system.

What is Education Cess?

Prior to 2018, the education cess comprised two components: a primary education cess and a secondary and higher education cess. This combined levy aimed to strengthen and modernize India's burgeoning educational landscape. It's important to remember that unlike income tax deductions, education cess is applied to the tax payable, not directly deducted from salaries. This cess applies to both individuals and corporations, with the rates determined annually during the budget.

In 2018, the government introduced a significant change, merging the two education cesses into a single Health and Education Cess, raising the total levy from 3% to 4% of income tax payable. This increased revenue stream aims to bolster both healthcare and educational infrastructure, particularly in remote areas lacking proper schools. This enhanced cess is expected to empower the government to address issues like school dropouts, often triggered by a lack of proper meals, and contribute to raising India's overall literacy rate.

What’s the Purpose of the Education Cess?

Historically, the primary purpose of the education cess was to finance quality basic education for underprivileged children. The initial focus was on ensuring completion of primary education. However, recognizing the need for accessibility to secondary and higher education, the government introduced the secondary and higher education cess in 2007.

Calculating the Education Cess

Let's take an example (based on the pre-2018 cess structure) to illustrate the calculation of the education cess. Consider Mr. Sharma, a private-sector employee with an annual income of Rs. 8 lakhs. Let's assume he invests Rs. 1.2 lakhs that are exempt from tax, resulting in a taxable income of Rs. 6.8 lakhs. Based on this taxable income, his income tax liability would be around Rs. 65,000.

Previously, the education cess comprised two parts:

• Primary Education Cess: 2% of income tax (Rs. 1300)
• Secondary and Higher Education Cess: 1% of income tax (Rs. 650)

Therefore, the total education cess levied on Mr. Sharma's income tax would have been Rs. 1950 (Rs. 1300 + Rs. 650). With the current Health and Education Cess, the cess on Mr. Sharma's income tax would be Rs. 2600 (4% of Rs. 65,000).

Utilizing the Education Cess

As the name suggests, the education cess is a tax specifically collected to support government initiatives and programs aimed at improving the quality and accessibility of education in India. Here's a breakdown of how these funds is typically used:

• Mid-day Meals: A crucial program that provides nutritious meals to students, particularly those from underprivileged backgrounds. This not only improves their nutrition but also incentivizes school attendance.
• Establishment of Schools and Institutions: The cess funds the creation of new government-run schools and educational institutions, expanding access to education across the country.
• Teacher Salaries: A portion of the cess goes towards improving salaries for teachers, para-teachers, and other school staff, fostering a more qualified and motivated workforce within the education system.
• Education Loans: The government can leverage these funds to offer student loans at lower interest rates, making higher education more financially attainable.
• Educational Initiatives: Schemes like the Rashtriya Madhyamik Shiksha Abhiyan, which promotes affordable secondary education, benefit from the education cess.
• Expansion of Renowned Institutions: The cess can be used to establish more branches of prestigious institutions like IITs and IIMs, extending their reach to underserved regions.