In India, taxpayers have to pay an education cess, which is 3% of their income tax. This amount is added to the taxpayer's income tax liability.
Education cess was initiated in 2004 as an addition to income tax. The aim of this cess was to support government's finances for providing children with access to basic education. Of the 3% of education cess, 1% is charged as secondary and higher education cess.
Let's say an individual has income of ₹800,000, and his tax liability is ₹85,000. In addition to this tax of ₹85,000, he will to pay a 3% education cess on the amount. Education cess works out to ₹2,781 (education cess of ₹1,700 and secondary and higher education cess of ₹850). So the total tax liability of the individual will go up to ₹87,781.
A domestic company has an income of ₹1,000,000 with tax payable of ₹300,000. On this tax, there will be an education cess of ₹6,000 (2%) and secondary and higher education cess of ₹3,000 (1%). So, the total tax liability of a domestic company will be ₹309,000.
An AOP/BOI has an income of ₹900,000 and a tax liability of ₹110,000. When you add the education cess of ₹2,200 and a secondary and higher education cess of ₹1,100, the total tax payable increases from ₹110,000 to ₹113,300.
Similarly, the education cess is applicable to all the other tax payers like Hindu Undivided Families (HUFs), firms, co-operative societies, and foreign companies.
Use our tax calculator to calculate the impact of education cess on your taxable income.