Understanding the difference between cess and surcharge

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The Union government has the authority to collect money through a variety of levies referred to as a tax, fee, cess, and surcharge. When it comes to taxation, it is entangled within numerous all-encompassing spider webs that make it difficult to understand the taxation aspect clearer. Let us understand what is difference the between cess and surcharge.

What is cess?

Cess is charged on the tax amount and is levied for a specific purpose. For example, the education cess collected is utilised only for education purposes.

“In India, cess is applicable to all the taxpayers, and it is calculated over, and above the base tax liability of the taxpayer, cess taxes initially go to the consolidated fund of India (CFI) that has to be used for the purpose for which it was collected. Currently the education cess is 4%,” said Manish Hingar, founder, Fintoo.

What is the surcharge?

The surcharge is levied on the tax payable and not on the total income. It directly goes to the CFI, and after that it can be used for any purpose, just like the normal tax. Surcharge applies to the taxpayer whose income is more than Rs 50 lakh.

In simple terms, surcharge is a tax on tax that is not collected for any particular cause, and the union government may use the proceeds of surcharges for any purpose it sees as important.

What is the difference?

The rate of cess under income tax is fixed at 4%, whereas the rate of surcharges varies from 10%, 15%, 25% & 37% based on the taxpayers’ total income.

-Cess is calculated on total tax and surcharge amount; surcharge is calculated on total tax amount only.

-In a nutshell, while both are taxes, cess is collected from every taxpayer to meet a certain purpose, and the surcharge is an additional tax collected from the taxpayers who have higher slab income.

-Also, the main difference is that each can be shared with the state government, the surcharge can be kept with CFI, and it can be utilised for other taxes, but cess should be utilised for a particular reason. “Surcharge is also a tax that is applicable on the tax amount. The objective behind the surcharge is to put a high tax burden on people with high incomes. Cess is levied on anyone liable to pay income tax, unlike surcharge, which is applicable only if total income exceeds Rs 50 lakh,” said Abhishek Soni, Co-founder, and CEO, Tax2win.in.