Education Cess

How to Calculate Education Cess:

Let us take an example of Aneesh. He has an annual income of Rs. 8 lakhs out of which he invests Rs. 30,000 in life insurance and contributes Rs. 40,000 towards a PPF account. He also makes a contribution to the Sukanya Samriddhi Account to the tune of Rs. 20,000 and invests Rs. 30,000 in a pension scheme. This means that his total investments amount to Rs. 1 lakh in a year which brings his taxable income down to Rs. 7 lakhs.

Based on his investments, the tax that he will have to pay is Rs. 65,000. On this tax he will pay education cess of:

Primary Education Cess: Rs. 1,300 at a rate of 2% of the tax payable, i.e. Rs. 65,000.

Secondary and Higher Education Cess: Rs. 650 at a rate of 1% of the tax payable.

How is Education Cess Used?

As the name suggests, this is a cess that is collected in order to enable the government to run education programs and schemes that can help improve the quality and access to education in the country. The money that has been collected by the government is earmarked for the following expenses:

• The cess is used to provide students with the mid-day meals.
• It is also used for setting up government aided schools and colleges.
• The staff of the government schools and colleges are also paid their salaries using this money.
• The government can also use this money to set up education loans that are provided at lower rates to students to help them pay the fee for higher education.
• It can also be used to fund special schemes like the Rashtriya Madhyamik Shiksha Abhiyan that aims at making secondary education more accessible.
• The money may also be used to fund premier institutes like IIT and IIM in the setting up of more branches in states that still don’t have access to these institutes.
• If the government plans on expanding the number of educational facilities for children, then the money collected as education cess can be used to fund the programs.