The Union Government levy a variety of levies such as tax, fee, cess, and surcharge to collect revenue. When you make most of the payment you would have noticed. The cess tax is a powerful instrument in the hands of taxpayers to hold government officials accountable. Surcharges are something of a reserve taxing power in the hands of the government to raise funds for its own use only. It's essential not to confuse between the two words. You must also calculate Cess and Surcharge when calculating income tax. The term Cess and Surcharge is a bit of a brainwave, particularly for those who are filing their first income tax return. Let us what is the main difference between Cess, Surcharge, and tax and when they are applicable.
What is Cess?
Cess is a tax on tax that is imposed by the central government for a particular reason. It is imposed before the government receives sufficient funds for that reason.
A cess is distinct from other taxes such as excise duty and personal income tax in that it is levied in addition to the current tax (tax on tax). For example, a 3% education cess on a 30 percent personal income tax is levied as a tax on the existing 30 percent. As a result, the overall tax rate rises to 30.9 percent (30 percent basic rate + 3% (cess) of the 30 percent tax rate).
However, certain cesses, such as the Swachh Bharat Cess (SBC), are levied as a percentage of the total value. The SBC is 0.5 percent of the total value of the facilities in this case.
The cess is imposed on all taxpayers in India who pay taxes. If any tax is generated on income, regardless of the amount, he must pay a tax on that tax as well. Cess is paid to the Consolidated Fund of India, but it can only be used for particular purposes.
Name of some of the main cess used in India
Road cess or (fuel Cess)
Clean Energy Cess
Krishi Kalyan Cess
Swachh Bharat Cess
Another distinction between Cess and General Tax (in India) is that the Central Government is not required to share tax revenue with State Governments. The other big taxes, on the other hand, must be shared with states in a predetermined proportion.
What is Surcharge?
The surcharge is a fee added to any tax that has already been paid. The surcharge is a term that refers to an extra fee or levy. Personal income tax (on high-income slabs and the ultra-wealthy) and corporate income tax are the two largest surcharges.
Surcharge revenue also goes to the Consolidated Fund of India (CFI), where it can be used for any reason, just like regular tax revenue. A surcharge is a tax on tax that is not levied for any particular reason, and the proceeds of surcharges are used by the Union government for whatever purpose it sees fit.
The Union Government's cess and surcharge tax are becoming an increasingly significant source of revenue. Surcharges are also deposited in India's consolidated fund, which can be used for any reason.
Individual taxpayers with an annual income of more than Rs 1 crore are required to pay a surcharge of 15% of their tax liabilities separately.
The key difference between the surcharge and the cess is that, although each can be shared with state governments, the surcharge can be kept with the CFI and spent like every other levy, while the cess should be kept as a separate fund after being allocated to the CFI and can only be spent for a particular reason.