Cess and Surcharge

A cess imposed by the central government is a tax on tax, levied by the government for a
specific purpose. Generally, cess is expected to be levied till the time the government gets
enough money for that purpose.
For example, a cess for financing primary education the education cess (which is imposed on
all central government taxes) is to be spent only for financing primary education (SSA) and not
for any other purposes.
A cess is different from the usual taxes like excise duty and personal income tax as it is imposed
as an additional tax besides the existing tax (tax on tax). For example, the education cess of
3% on personal income tax of 30% is imposed as a tax on the prevailing 30%. As a result, the
total tax rate goes up to 30.9% (30% basic rate + 3% (cess) of the 30%).
But some cess like the Swachh Bharat Cess (SBC) is imposed as percentage tax on total value.
Here the SBC is 0.5% of the value of the services.
Another difference between cess and the usual tax is the way in which tax revenue from cess
is kept. Revenue from main taxes like Personal Income taxes are kept at Consolidated Fund of
India (CFI). The government can use it for any purposes.
But the tax revenue from Cess are first credited to the CFI and the Central Government may,
after due appropriation made by Parliament, utilise the money for the specified purposes. For
example, the proceeds are kept as Central Road Fund (CRF) in the case of fuel cess (on petrol
and diesel). The revenue collected is initially credited to the CFI and after adjusting for the cost
of collection, Parliament through its appropriation bill, credits such proceeds to the Central
Road fund.
Another major feature of cess like surcharges is that the Centre need not share it with states.
But regarding all other major taxes they come under the divisible pool and hence they shall be
shared with the states with the recommendations of the Finance Commission.
At present, the main cess are: education cess, road cess or (fuel cess), infrastructure cess, clean
energy cess, krishi kalyan cess and swachh bharat cess.

Surcharge is an additional charge or tax levied on an existing tax. Unlike a cess, which is
meant to raise revenue for a temporary need, surcharge is usually permanent in nature. It is
levied as a percentage on the income tax payable as per normal rates. The revenue earned via
surcharge is solely retained by the Centre and, unlike other tax revenues, is not shared with
States. Collections from surcharge flow into the Consolidated Fund of India.
Surcharge is levied on Income Tax and is levied if Income is more than Rs. 50 Lakhs in case
of Individuals and Rs. 1 Crores in case of Companies. The rate of Surcharge has been increased
in the Finance Act 2017 which is applicable for Financial Year 2017-18.
Different rates of surcharge are applicable for different categories of taxpayers and the current
rates of Surcharge are as follows:-
1. Individuals, HUF, Association of Persons, Body of Individuals, Artificial Judicial
Persons Level of Income Surcharge on Income Tax
Less than Rs. 50 Lakhs Nil
Rs. 50 Lakhs to Rs. 1 Crore 10%
More than Rs. 1 Crore 15%
2. Firms, Co-operative Societies and Local Authorities Level of Income Surcharge on
Income Tax

Less than Rs. 1 Crores Nil

More than Rs. 1 Crores 12%

3. Domestic Company Level of Income Surcharge on Income Tax

Less than Rs. 1 Crores Nil

Rs. 1 Crores to Rs. 10 Crores 7%
More than Rs. 10 Crores 12%

4. Foreign Company Level of Income Surcharge on Income Tax

Less than Rs. 1 Crores Nil

Rs. 1 Crores to Rs. 10 Crores 2%
More than Rs. 10 Crores 5%