Health and Education Cess

A cess is a tax that can only be used by the government for the purpose for which it is collected. It is collected for the welfare of a certain sector. This is the primary difference between a tax and cess as taxes can be used wherever needed. Moreover, cess is charged over and above the tax payable and is applicable on income tax at all income tax slabs.

For instance, the health and education cess applicable FY 2018-19 onwards can only be spent on its stated objective of meeting the health and education needs of Below Poverty Line (BPL) families. It cannot be used for any other purpose and if unspent, must be carried over for future spending on its designated objective. The Health and Education Cess cannot be allocated to State Governments and is spent exclusively by the Central Government.

In previous financial years, there was a Secondary and Higher Education Cess of 3%. This was replaced by the Health and Education Cess in Budget 2018, thereby broadening its scope to both the health and education categories.

As stated above, health and education cess is calculated on the tax payable, is the same for everybody and has to be paid at all tax slabs. However, in case an individual’s tax liability is zero, no cess needs to be paid.

The current health and education cess rate for FY 2025-2026 (AY 2026-2027) is 4% over the tax payable. It is applicable on income tax at all slabs. Cess (health and education cess) stands in contrast with surcharge that is only applicable to incomes above Rs. 50 lakh. In respect of such incomes (Rs. 50 lakh and above), both surcharge and cess are applicable and both are levied on the basic tax payable rather than the underlying income.

The primary aim of collecting health and education cess by the government of India is to improve the healthcare and educational facilities in the deprived areas of semi-urban and rural India.

Some of the key areas where these funds are used by the government are:

In case the amount of health and education cess collected in a year remains unutilized for a financial year, it is carried forward to the next year under the same head.