Surcharges and cess
Why in news?
States urged the Centre to rein in its reliance on raising revenues through cesses and surcharges that reduce their share in the divisible pool of taxes
- The share of cesses and surcharges had grown from 10.4% of gross tax revenue in 2011-12 to 7% in 2021-22 that deprived the States of their legitimate share of revenue collected by the Union Government
- The Centre has been increasing surcharges and cesses despite the Constitution setting conditions for its imposition
What are the other fiscal issues states are facing?
- The Centre to resolve the issue of refunds of the corpus given to the National Pension Scheme, as the States has restored the old pension scheme.
- They also sought greater fiscal support to help revive the economy and reiterated demands for extending the Goods and Services Tax (GST) compensation period
- States raised concerns about pending dues from the five-year GST compensation window for States that expired this year
What is Surcharge?
- Surcharges are charged on taxes already paid. It is a tax collected on any tax.
- Not every earning individual has to pay a surcharge.
- Applicable : Only to those individuals and Hindu undivided families(HUFs) who come with a high annual income.
- This is levied on the payable income tax and not on the taxable income.
What is the Purpose of Surcharge Collection?
- The rich and super-rich category of people is required to pay a surcharge on their income tax.
- The purpose of levying surcharge is to receive more tax from the privileged class of the societyand thereby use the amount for the upliftment of the poorer sections.
Who Pays Surcharge?
- Between Rs. 50 lakh to Rs. 1 crore per annum– 10%
- More than Rs. 1 crore: 15%
- People paying the surcharge also have to pay 3% Cess (2% Education Cess + 1% Higher Secondary and Secondary Education Cess).
- Foreign corporate companies with an income between Rs. 1 crore to 10 crores pay a 2% surcharge, and those exceeding Rs. 10 crores pay a 5% surcharge.
What is Cess?
- The government collects cess to fulfil a particular pre-decided purpose and can be used for that purpose only.
- A cess can be introduced and removed at any time.
- If the government feels that enough funds have been collected through the taxes, it can abolish the cess.
- Some examples of cess include agriculture cess, Education cess, Secondary and Higher Education cess and more.
What is the purpose of Cess Collection?
- When there is a need for funds for a specific purpose.
- Cess collected from citizens goes directly to the CFI (Consolidated Fund of India).
- In case of an excess fund, the government will use the remaining money for any purpose that it deems fit.
Who Pays Cess?
- Cess applies to direct and indirect taxes and to every individual paying tax in India. Therefore any amount of tax generated, one has to pay Cess on the tax.
Types of Cess in India
- At present, there are nine types of cess.
- The introduction of the Goods and Services Tax (GST) in 2017 eliminated most of the cess levied previously.
Surcharge vs Cess
|The surcharge goes to Consolidated Fund Of Indiaand can be spent for any purpose.||Cess goes to Consolidated fund of India but can be used for a specific purpose only and not for any other cause.|
|Only the rich and super-rich category of people pays the surcharge.||Every taxpayer pays cess.|
|Authorities levy a surchargeonly on one’s total tax amount.||Cess calculation takes place on both the total tax and the surcharge.|