What is Health and Education Cess on Income Tax? Definition and Examples

A cess on income tax is an additional charge the Government of India collects to fund a specific purpose. It is not a permanent tax and can be removed once its objective is achieved.

For instance, if you are a taxpayer with a basic income tax payable of ₹5 lakh, a 4 percent cess will amount to an additional ₹20,000, which will be contributed to health and education programs. Now, let's consider a higher-income scenario. Suppose your income tax is ₹20 lakh, and a surcharge of 10 percent applies. The surcharge adds ₹2 lakh to your total, making it ₹22 lakh. In this case, the 4 percent cess would amount to ₹88,000, supporting initiatives to improve health and education infrastructure. These examples illustrate how the collected cess directly supports targeted initiatives across different income levels.

Cess is levied to support targeted areas such as infrastructure, welfare programs, or sector-specific development. The amount collected is deposited into the Consolidated Fund of India, but is used only for the purpose for which the cess was introduced.

Types of Cess Levied on Income Tax in India

Education Cess

The education cess and related charges have changed over the years, and several types of cess exist to fund specific national needs.

Health and Education Cess

The education cess on income tax was initially introduced at a rate of 2 percent in the early 2000s to support basic education needs. Later, a Secondary and Higher Education Cess of 1 percent was added, bringing the total to 3 percent.

In FY 2018-19, the total cess was replaced with a 4 percent health and education cess. This updated rate was introduced to broaden the scope of funding, targeting educational infrastructure, digital learning, teacher training, and basic amenities for underprivileged communities. The cess also helps fund national health schemes focused on rural and low-income groups, providing a more comprehensive allocation of resources to vital sectors.

Road and Infrastructure Cess

This cess is applied to excisable and imported fuels such as petrol and high-speed diesel. It is levied per litre of fuel and collected at the production or import stage, regardless of the type of vehicle that uses it. Currently, a cess of ₹8 per litre is charged on petrol and high-speed diesel.

GST Compensation Cess

GST compensation cess is levied to offset the revenue losses states face due to the shift to GST. It was introduced under the GST (Compensation to States) Act 2017 for a five-year period, or as extended by the GST Council.

Construction Workers Welfare Cess

Under the Building and Other Construction Workers’ Welfare Act, employers must pay 1 percent of the construction cost as cess. The collected amount supports welfare schemes for construction workers.

Cess on Crude Oil

The crude oil cess rate in India varies but primarily involves an OIDB Cess of 20% ad valorem for older (pre-NELP) blocks and a variable Special Additional Excise Duty (SAED) or windfall tax.

National Calamity Contingent Duty

NCCD is imposed on products like cigarettes, pan masala, and chewing tobacco. The 2023 Budget proposed a 16 percent increase in NCCD on specific cigarette categories.

What is Health and Education Cess?

The health and education cess replaced the earlier 3 percent Secondary and Higher Education Cess in Budget 2018. The new structure widened the coverage to support both health and education programmes. The cess is charged on the tax payable, applies to all taxpayers across all tax slabs, and is uniform for everyone. If a person has zero tax liability, no cess is charged.

Health and Education Cess Rate

The health and education cess rate for FY 2025–26 is 4 percent on the tax payable. It applies to income tax across all slabs. Unlike surcharge, which applies only to incomes above ₹50 lakh, cess applies to all taxpayers. For high-income individuals, both the surcharge and the 4 percent cess are calculated on the basic tax payable.

How to Calculate Cess on Income Tax (Step-by-Step)

Understanding how to calculate cess on income tax starts with identifying your total tax payable.

First, calculate your basic income tax according to the applicable slab. Then, if appropriate, add the surcharge to this amount. Finally, apply the 4 percent cess to the combined sum of your basic income tax and surcharge. This sequence ensures accuracy and helps you avoid common mistakes.

Follow these steps for the health and education cess calculation:

Step 1: Compute total taxable income.

Identify your net taxable income after all exemptions and deductions.

Step 2: Calculate income tax based on the applicable slab.
Use the old or new regime tax slabs to find the basic tax payable.

Step 3: Add surcharge, if applicable.
Surcharge applies only if the total income exceeds ₹50 lakh.
Examples of surcharge rates:

• 10 percent for income between ₹50 lakh and ₹1 crore
• 15 percent for income between ₹1 crore and ₹2 crore

Step 4: Calculate the 4 percent Health and Education Cess.
Cess is applied on the amount obtained after adding basic income tax and surcharge.

Step 5: Add all components to arrive at the total tax liability.

Example
If the basic tax payable is ₹20 lakh on an income of ₹75 lakh, a surcharge of 10 percent applies.

• Surcharge: 10 percent of ₹20 lakh = ₹2 lakh
• Subtotal before cess: ₹22 lakh
• Health and Education Cess: 4 percent of ₹22 lakh = ₹88,000

Total tax payable: ₹22,00,000 + ₹88,000 = ₹22,88,000

How is Health and Education Cess Used by the Government?

The tax on education in India and the health cess help improve access to healthcare and education in rural and semi-urban regions. The funds are restricted for these purposes and cannot be diverted elsewhere.

The government uses this amount to support critical areas such as:

• Improving primary and higher education standards in underserved regions
• Running the mid-day meal scheme to lower dropout rates in rural schools
• Expanding internet access to strengthen digital learning
• Providing online connectivity for schools and colleges in remote locations
• Funding teacher and staff salaries in government institutions
• Building national-level institutes such as IITs, AIIMS, and IIMs to expand opportunities

If any portion of the education tax in India remains unused in a financial year, it is carried forward and used for the same purpose in the following year.

How Does Health and Education Cess Affect Your Total Tax Liability?

The health and education cess on income tax increases your final tax payment because it is added after you compute your basic tax and surcharge. It is not calculated on your total income but only on the tax amount you owe.

Here is how it affects your liability:

• The cess is charged on the total tax payable, including surcharge when applicable.
• The current rate is 4 percent and applies uniformly across all income levels.
• Your total tax outflow increases because the cess is added after the tax is computed under the applicable slab.

You calculate your income tax first, include any surcharge if your income qualifies, and then add 4 percent of that amount as the health and education cess.

You can also review the guide on Budget 2025: A Windfall for the Middle Class!, to understand how the latest proposals influence your overall tax liability, including the components that interact with cess and surcharge.

Does Health and Education Cess Apply to All Taxpayers?

The health and education cess in income tax applies to almost all categories of taxpayers. It is charged at 4 percent on the income tax plus surcharge. The only exception is specified funds under Section 10(4D) and those covered by treaties that provide an exemption from this cess.

No cess is applied to entities that wholly engage in charitable activities approved under specific sections, such as 10(23C) and 11, subject to meeting the conditions. These exemptions reassure taxpayers that they are not missing any important details about applicability.

Below is a clear table showing which taxpayers pay the cess, based on the extracted document.

Frequently Asked Questions - FAQs

Are there any other exceptions besides Section 10(4D) where cess does not apply?

The cess is generally applicable to all taxpayers. The only specific exception mentioned in the tax provisions is for specified funds under Section 10(4D). These funds do not pay cess on income related to eligible securities. For all other taxpayers, cess is mandatory.

How do salaried individuals see cess reflected in their Form 16 or tax returns?

Salaried individuals can see the health and education cess in their Form 16 tax computation details, where employers show a separate line item for “Health and Education Cess @ 4%.

For self-employed or business taxpayers, the cess appears in their income tax return (ITR) filings. It is included in the overall tax computation as a 4 percent charge on the final tax payable, similar to how it is presented for salaried individuals.

In the ITR, the cess appears in the Tax Computation section as a separate 4 percent charge above income tax and surcharge.

If you want to explore another important area of personal taxation, our guide on “Is Gratuity Taxable In India?” explains how gratuity is taxed and how it fits into your overall income tax calculations.

If I overpay cess, can I claim a refund or adjustment in the next year?

Yes. If total tax paid exceeds the final tax liability, including cess, the excess amount is refundable. The refund is processed after the income tax return is filed. However, you cannot carry forward last year's excess cess to next year's tax. Each financial year is calculated independently.

What were the previous cess rates, and when did they change?

Before 2018, taxpayers paid a 3% Education Cess, which included:

• 2 percent Education Cess
• 1 percent Secondary and Higher Education Cess

In Budget 2018, this structure was replaced with the 4% Health and Education Cess, which continues to apply across all income slabs.