Health And Education Cess For Ay 2021-22?

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Health And Education Cess For Ay 2021-22
Income tax slab for Individual aged more than 80 years –

Income Tax Slab Tax Rates for Super Senior Citizens (Aged 80 Years And Above)
Income up to Rs 5,00,000* No tax
Income from Rs 5,00,000 – 10,00,000 20%
Income more than Rs 10,00,000 30%

NOTE:

  • An additional 4% Health & education cess will be applicable on the tax amount calculated as above.
  • Surcharge applicability: – 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore. – 5% of income tax, where the total income exceeds Rs.1 crore

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Is health and education cess mandatory in India?

Health and education cess was introduced by late Finance Minister Arun Jaitley in Union Budget 2018 replacing the earlier secondary and higher education cess of 3 per cent. – Health And Education Cess For Ay 2021-22 An individual taxpayer who missed the last date to file an original income tax return can file a belated ITR before December 31. New Delhi : Whether you like it or not, income tax is an integral part of our professional lives. And health & education cess is an integral part of the income tax you pay every year.

  • A cess is a form of tax levied by the government for the development of a particular service or sector.
  • It’s charged over and above direct and indirect taxes.
  • Health and education cess was introduced by late Finance Minister Arun Jaitley in Union Budget 2018 replacing the earlier secondary and higher education cess of 3 per cent.

“Health and Education Cess is levied at the rate of 4% on the amount of income-tax plus surcharge. Note: A resident individual (whose net income does not exceed Rs.5,00,000) can avail rebate under section 87A. It is deductible from income-tax before calculating education cess.

  • The amount of rebate is 100 per cent of income-tax or Rs.12,500, whichever is less,” according to Income Tax website.
  • As the name suggests, health and education cess is collected by the government of India with an aim to improve the healthcare and educational facilities in the deprived areas of rural and semi-urban India.

According to FISDOM, the government uses these funds to:

Raise the standard of primary as well as higher education in India, with particular focus on rural and semi-urban areas.Run a mid – day meal scheme in schools, which has proved to be effective, especially in rural areas by checking the dropout rate in primary schools.To enhance the quality and access to education by providing seamless internet connectivity.Ensure online and digital connectivity to schools and colleges even in remote areas.To provide funds for salaries of teaching and allied staff.To fund special schemes like “Rashtriya Madhyamik Shiksha Abhiyan”.Create world-class infrastructure and opportunities by opening higher education institutes of national importance like IITs, IIMs, AIIMS across more states.

If the cess amount collected in a year remains unutilized for that financial year, it can be carried forward to the next year under the same head.
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What is MMR tax rate in India 2021?

Tax Rates As Per Old Regime The corporate marginal tax rate in India for the year 2021 is 25.17% with cess and surcharges for domestic companies.
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Is capital gain tax is exempted for senior citizens and pensioners in India?

Exemptions on Long-Term Capital Gains Tax – An individual will be exempted from paying any tax if their annual income is below a predetermined limit. The tax exemption limit for the fiscal year 2019-2020 is the following.

  1. Residential Indians of 80 years of age or above will be exempted if their annual income is below Rs.5,00,000.
  2. Residential Indians between 60 to 80 years of age will be exempted from long-term capital gains tax in 2021 if they earn Rs.3,00,000 per annum.
  3. For individuals of 60 years or younger, the exempted limit is Rs.2,50,000 every year.
  4. Hindu Undivided Families can enjoy tax exemption if the annual income of their family is under Rs.2,50,000.
  5. For non-residential Indians, the exempted limit is flat Rs.2,50,000 irrespective of the age of the individual.

Individuals are not liable to earn any tax deduction under Section 80C to 80U from long-term capital gains tax in India. The entire profited amount will qualify for taxable income and will be charged a flat 20% tax under long-term capital gain. There is no minimum exemption limit on the entire amount, which makes it susceptible to attract large taxes.
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Is 80C applicable in new tax regime?

Can I claim section 80C deduction under revised new tax regime? – No, if you choose the new tax regime you will not be able to claim the section 80C tax benefit.
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What is MMR tax rate?

Section 2(29C) Income Tax: Maximum Marginal Rate – Meaning As per Section 2(29C) of Income Tax Act, 1961, unless the context otherwise requires, the term “maximum marginal rate” means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year.

In other words, the term maximum marginal rate of income tax refers to the applicable highest rate slab of income tax, mostly in the case of individuals, HUF, etc. The maximum marginal tax rate in India is the highest in the world. The Indian government has been criticized for imposing such a high tax rate on its citizens.

Critics say that the high tax rate is discouraging investment and growth in the country. They also argue that it is unfair to impose such a high tax on people who are already struggling to make ends meet. Supporters of the high marginal tax rate say that it is necessary to raise revenue for the government.

Related Posts:

: Section 2(29C) Income Tax: Maximum Marginal Rate – Meaning
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Is income taxable at MMR?

Where income of any member of AOP exceeds the maximum amount which is not chargeable to income-tax (i.e., basic exemption limit), the AOP shall be taxed at Maximum Marginal Rate i.e., 30 per cent plus surcharge and HEC as applicable.
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What is MMR amount?

What is Estimated Retail? – The MMR estimates the typical average range of retail values based on Cox Automotive retail transactions for a given year, make, model and style. Retail values are shown in MMR only for the convenience of our subscribers who need an approximate retail price.
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At what age can you avoid capital gains tax?

All Other Circumstances – Currently there are no other age-related exemptions in the tax code. In the late 20th century, the IRS allowed people over the age of 55 to take a special exemption on capital gains taxes when they sold a home. This let homeowners exempt up to $125,000 worth of profit from the sale of their primary residence from their capital gains taxes.

The purpose was to help households either in or preparing for retirement. In 1997, Congress amended the tax code to create the standard exclusion that applies today. Under current law, households can exempt from their capital gains taxes the first $250,000 Single/$500,000 Married of profits from the sale of a primary residence.

In doing so it also repealed the existing exemption for households 55 and older. Unfortunately for retirees, this was the only age-based exemption in the tax code. While retirement accounts have tax advantages, and you can adjust the balance of your retirement withdrawals to minimize your applicable tax rates, there are no specific exemptions for seniors.
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How much income is tax free for senior citizens?

However, for Senior Citizens the basic exemption limit is fixed at a higher figure of Rs.3 lakh. Super Senior Citizens do not have to pay any tax or file return upto Rs.5 lakh of annual total income.
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What is 80D tax benefit limit?

How much tax is saved under Section 80D? – The amount of income tax that can be saved under Section 80D depends on the income tax slab in which your taxable income falls in. If an individual’s taxable income – after claiming deduction of Rs 25,000 under Section 80D – falls between Rs 2.5 lakh and Rs 5 lakh, then the tax rate is 5%.

Tax-savings due Section 80D deduction
Income tax rate Maximum deduction of Rs 25,000 Maximum deduction of Rs 50,000 Maximum deduction of Rs 75,000 Maximum deduction of Rs 1 lakh
5% 1,300 2,600 3,900 5,200
20% 5,200 10,400 15,600 20,800
30% 7,800 15,600 23,400 31,200

All tax-savings are inclusive of cess at 4%.

Deduction on preventive health-check ups Tax benefit available on medical bills of senior citizens Also Read: Other things to keep in mind

Section 80D allows an individual to claim tax benefit for preventive health check-up of Rs 5,000. This tax-benefit is available within the maximum deduction limit of Rs 25,000 or Rs 50,000, as the case maybe. Thus, if the health insurance premium paid for individual below 60 years is Rs 21,000, then additional benefit of Rs 4,000 can be claimed under preventive health check-up.

Many diagnostic labs and hospitals offer preventive health check-up. If the senior citizen or senior citizen parent is not covered under any health insurance policy, then medical bills can help to claim deduction under Section 80D.The Income-tax Act was amended from FY 2018-19 to allow senior citizens or individuals incurring medical expenditure for senior citizen parents to allow claiming deduction on the basis of medical bills.

The deduction under Section 80D can be claimed if health insurance premium is paid via electronic or digital modes such as cheque, debit card, credit card, UPI etc. Hence, if the health insurance premium is paid in cash, then an individual will not be able to claim tax benefit under Section 80D.
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Which deductions are not allowed in new tax regime?

New Income tax slabs: Deductions, exemptions not available in proposed new tax regime Individuals opting to pay under the new lower personal regime will have to forgo almost all tax breaks that they were claiming in the old tax structure. The important tax breaks that will not be available under the new tax regime include Section 80C (Investments in PF, NPS, Life insurance premium, home loan principal repayment etc.), Section 80D (medical insurance premium), tax breaks on HRA (House Rent Allowance) and on interest paid on housing loan.

Tax breaks for the disabled and for charitable donations will also not be available under new tax regime. “Under the new tax regime, the individuals can opt to pay tax at the reduced rates without claiming the various and deductions. The individuals will have to work out their tax liability under the old and new tax regime before deciding which one is more beneficial.

While the new regime seems simple on account of no exemptions, there would be individuals who have already made commitment in recurring tax savings instruments who may still want to avail exemptions and get taxed under the old regime,” said Shalini Jain, Tax Partner, EY India.

Here’s a list of the main exemptions and deductions that tax payers will have to forgo if they opt for the new regime.(i) Leave travel allowance (LTA) exemption which is currently available to salaried employees twice in a block of four years(ii) House rent allowance (HRA) normally paid to salaried individuals as part of salary.

This could be claimed as tax exempt up to certain specified limits if the individual was staying in rented accommodation(iii) of Rs 50,000 currently available to salaried tax payers and pensioners(iv) Deduction available under section 80TTA/80TTB will not be available to the,

Abhishek Soni, CEO & founder, Tax2win.in says, “As Section – 80TTA and 80TTB are covered under chapter-VIA and the new tax regime excludes deductions under chapter-VIA subject to certain exceptions. Thus, a person opting for the new tax regime shall not be entitled to claim deduction u/s 80TTA(Deduction in respect of Interest on deposits in savings account) and 80TTB(Deduction in respect of Interest on deposits to senior citizens).”(v) Deduction for entertainment allowance (for government employees) and employment/professional tax as contained in section 16(vi) Tax benefit on interest paid on housing loan taken for a self-occupied or vacant house property: Interest paid on housing loan for such a property could be claimed as a deduction from income from house property which resulted in a loss from house property (as the property was self/occupied or vacant).

This loss could be set off against salary income thereby reducing the individuals’ taxable income and net tax liability. This comes under section 24(vii) Deduction of Rs 15000 allowed from family pension under clause (iia) of section 57(viii) The most commonly claimed deductions under section 80C will also go.

Which deduction is available under the new income tax regime? An individual can claim deduction under Section 80CCD(2) under the new tax regime. Section 80CCD (2) offers deduction on the employer’s contribution to employee’s NPS account. Can I claim tax exemption on HRA, LTA under the new tax regime? No, you cannot claim tax exemption on HRA and LTA under new tax regime. Is deduction under section 80D available under the new tax regime? No, individual cannot claim the 80D deduction if he/she has opted for the new tax regime.

In Video: (Your on estate planning, inheritance, will and more.) Download to get Daily Market Updates & Live Business News. more : New Income tax slabs: Deductions, exemptions not available in proposed new tax regime
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Who is eligible for health and education cess?

The 4% health and education cess is the same for everybody, irrespective of which income tax slab one falls in. However, there will not be any cess if an individual’s income tax liability is zero.
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How do I find my education cess?

Education Cess Calculation – In order to calculate education cess, let’s assume that a person who earns Rs 8 lakhs annually invests around Rs 30,000 in purchasing a life insurance policy and later contributes around Rs 40,000 into the PPF account. This person also contributes money towards opening a Sukanya Samriddhi account by investing Rs 20,000 and Rs 30,000 for purchasing a pension policy/scheme.

Hence, he invests a total amount of Rs 1 lakh on an annual basis that brings the total amount taxable to Rs 7 lakhs. On the basis of the investments that he has made, the taxation amount that he’ll be paying is Rs 65,000. Hence, the amount of educational cess that he will be paying on the tax would be: Primary Education Cess: Rs 1,300 levied at the rate of two percent of the amount of tax that needs to be paid (i.e.

Rs 65,000).

Secondary and Higher Education Cess: Rs 650 at the rate of one percent of the amount of tax that needs to be paid.Thus, the education cess that needs to be paid in total shall be Rs 1,950 and the amount of income tax that would be due for the person would be Rs 66,950.But, it must be noted that the education cess needs to be paid only the tax amount that is due and if the income comes under non-taxable slab of the IT taxation slab, then you don’t need to pay the cess amount.

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How do you calculate cess?

Method of calculation for type Amount/Unit Factor – For component calculation type as ‘Amount/Unit Factor’ system will consider Cess value based on values defined GST Group Code in fields Cess UOM, Cess Amount Per Unit Factor and Cess Factor Quantity,

    GST calculation will appear in the Fact Box, as following:

    Component Amount
    Quantity 2
    Unit Amount 5000
    GST Base Amount 10000
    CGST 900 (10000*9/100)
    SGST 900 (10000*9/100)
    IGST 1800 (10000*18/100)
    CESS 280 (140×2)

    /ul>
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    When health and education cess is not applicable?

    Health & Education Cess not allowed as business expenditure – Section 37? As per the recent Amendment introduced through Finance Act 2022, ‘Health and Education Cess’ is not allowed as business expenditure for the computation of business income. The ‘Health and Education Cess’ is imposed as an additional surcharge on the taxpayer for funding specific government welfare programs and is part of income tax.

    • Please note that cess, surcharge, and surtax are of similar nature and have been used interchangeably in this note.
    • Legal Provisions
    • Section 37 of the Income Tax Act, 1961 (” Act “) provides for the allowability of revenue and non-personal expenditure (other than those failing under sections 30 to 36) laid out or expended wholly and exclusively for the purposes of business or profession.
    • As per Section 40, (a)(ii) of the Act, any sum paid on account of any rate or tax levied on the profits and gains of business is not deductible in computing the income chargeable under the head ‘Profits and gains of business or profession’.

    Similarly, Section 2(43) of the Act, defines ‘tax’ to mean income-tax chargeable under the provisions of the Act at the rates specified in part I of the First Schedule. Such tax shall be increased by a surcharge, for the purposes of the Union, calculated in each case in the manner provided therein.

    1. “Section 4 of the Income Tax Act, of 1961 provides for the levy of tax:
    2. “(1) Where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income tax at that rate those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax)of, this Act in respect of the total income of the previous year of every person; Chapter II of every Finance Act provides “Rates of income-tax” chargeable for the relevant assessment year.”
    3. What is cess?

    The abovementioned provisions were explained by the Hon’ble Supreme Court in CIT v.K. Srinivasan 83 ITR 346 (SC) asunder: “the above legislative history of the Finance Acts, as also the practice, would appear to indicate that the term “income-tax” as employed in s.2 includes surcharge as also the special and the additional surcharge whenever provided within the meaning of Art.271 of the Constitution.

    The phraseology employed in the Finance Acts of 1940 and 1941showed that only the rates of income tax and super tax were to the increased by a surcharge for the purpose of the Central Government. In the Finance Act of 1958, the language used showed that the income tax that was to be charged was to be increased by a surcharge for the purposes of the Union.

    The word “surcharge” has thus been used to either increase the rates of income tax and super-tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term “income tax” as used in s.2 includes a surcharge.” The Education Cess which was introduced vide section 2 of the Finance Act 2004 and is an additional surcharge for the purposes of the Union to meet their financial priorities in the health and education sector.

    The base tax, surcharge, and additional surcharge also known as Education Cess, therefore, comprise the total income-tax payable on the income by an assessee. Both the surcharges are levied for the specific purposes of the Union and constitute the total income tax. The above legal position has been affirmed in various decisions of the Hon’ble ITAT.

    For instance, the bench at Hyderabad in the case of Virtusa (India) Private Limited dated 04.03.2016 and Hon’ble Chandigarh ITAT in M/s Steel Strips Wheels Ltd.v. DCIT (CPC), Bangalore dated 18.03.2020 has reaffirmed this position. Application of Section 37(1) of the Act When one looks at the scheme of the Act and examines the interplay of the provisions of section 40(a)(ii) and section 37(1), it is clear that first, the expense must pass through the anvil of Section 37(1), only then an examination under section 40(a)(ii) of the Act is made.

    This is clearly evident from section 40(a)(ii) which starts with a non-obstante clause, which reads as follows: “40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,- 1.

    In the case of any assessee-(ii) any sum paid on account of any rate of tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains.” The effect of the non-obstante clause in section 40 is that the allowability of a deduction u/s 40(a)(ii) shall be barred if it is otherwise allowable under any of the provisions contained in sections 30 to 38.

    However, if it does not pass the criteria of allowability u/s 30 to 38 at the threshold, that is the end of the matter and there is no need to go back to section 40(a)(ii). In view of this, the allowability of education cess shall have to be examined first under the terms of section 37(1) i.e. whether the said expenditure has been ‘laid out or expended wholly and exclusively for the purposes of business or profession.

    The fundamental question, therefore, which arises for consideration is whether an education cess is an expenditure ‘laid out or expended wholly and exclusively for the purposes of business or profession. The answer to this question is clearly negative because ‘education cess’ is not expenditure at all,

    Rather, it is a charge upon the profits, similar to income tax. Any expenditure to earn a profit cannot be a part of the profit itself. It is an application of an income and not an expenditure ‘laid out or expended wholly and exclusively for the purposes of business or profession so as to pass the tests envisaged u/s 37(1).

    In this relation, the Hon’ble Gujarat High Court in S.L.M. Maneklal Industries Ltd.v. CIT 39 Taxman 42(Gujarat), has held that surcharge was not an expenditure ‘‘laid out or expended wholly and exclusively for the purposes of business or profession u/s 37(1) of Act.

    1. The payment of surtax or surcharge has nothing to do with the conduct of the business of the assessee.
    2. It was not an expenditure incurred for the purpose of business or for the purpose of earning profit.
    3. It is only after the profit or income is earned that, as pointed out above, the question of payment of surtax would arise.

    It is an event that takes place after the income is earned not in the course of or in the process of earning income. It is out of the profits or income earned that surtax is to be paid. In other words, payment of surtax is the application of the profits after they are earned.

    • As discussed above, a surtax is levied on excess chargeable profits computed in the manner laid down in the Act.
    • It is a levy on the total income computed under the Act after it is adjusted in accordance with the First Schedule to the Act.
    • The computation of income for the purpose of the Act has to precede the assessment of surtax under the Act.

    Therefore, surtax stands on the same footing as income tax on the total income computed under the Act. Payment of both income tax and surtax is the application of income after it is earned and not expenditure incurred for the purpose of business. It is not a deduction before one arrives at the profits inasmuch as it is not payment for the purpose of earning profit.

    Since payment of surtax is not an allowable deduction under section 37, the question of whether it comes within the mischief of section 40(a)(ii) does not arise. In other words, it is not necessary to consider whether the prohibition contained in section 40(a)(ii) is applicable to the payment of surtax.

    This view was also taken by the Calcutta High Court in CIT in Molins of India Ltd.V. CIT 144 ITR 317, the Karnataka High Court in CIT v. International Instruments (P) Ltd 144 ITR 936, Full bench of the Kerala High Court in A.V. Thomas & Co. CIT 159 ITR 431 and Madras High Court in Sundaram Industries Ltd.v.

    1. CIT 159 ITR 646.
    2. The ‘education cess’ fails the test of deductibility at the first stage itself under the terms of section 37(1) and, therefore there is no further need to examine embargo u/s 40(a)(ii).
    3. Application of Section 40(a)(ii) of Act A different approach was adopted by the Courts in the Sesa Goa v.

    JCIT case where the Bpmbay High Court simply assumed the allowability of ‘education cess’ as an expenditure ‘laid out or expended wholly and exclusively for the purpose of business or profession’ u/s37(1) and instead proceeded to examine the prohibition contained in section 40(a)(ii).

    This brings us to section 40(a)(ii) of the Act and even if one were to assume the deductibility of ‘education cess’ u/s 37(1) of the Act, the question arises whether the bar contained in section40(a)(ii) operates qua ‘education cess’. To put it simply, the real question would be to see whether ‘education cess’ is taxable so as to fall within the mischief of Section 40(a)(ii) of the Act.

    It may be noticed at the outset that education cess was introduced as an additional surcharge as explained in the ‘Explanatory Memorandum to Finance Bill, 2012. The relevant excerpt from the said Memorandum reads as follows: “(2) Education Cess- for the assessment year 2012-13, an additional surcharge called the “Education Cess on income tax and “Secondary and Higher Education Cess on income tax” shall continue to be levied at the rate of two percent and one percent, respectively, on the amount of tax computed, inclusive of surcharge, in all cases.

    1. No marginal relief shall be available in respect of such Cess.” An ‘additional surcharge’ is, therefore, nothing but a tax’, as held by a three-judge Bench of the Hon’ble Supreme Court in CIT v K Srinivasan 83 ITR 346 (SC).
    2. The following words of Grover, J elucidate the law in unequivocal terms.
    3. In our judgment, it is unnecessary to express any opinion in the matter because the essential point for determination is whether a surcharge is an additional made or rate for charging income tax.

    If that meaning is applied to s 2 of the Finance Act 1963 it would lead to the result that income tax and super tax were to be charged in four different ways or at four different rates which may be described as (i) the basic charge or rate (in part I of the First Schedule); (ii) Sur-charge; (iii) special surcharge and (iv)additional surcharge calculated in the manner provided in the Schedule.

    1. Read in this way the additional charge forms a part of the income tax and super tax.” This judgment in K Srinivasan cited above, however, was not considered by the Bombay High Court in Sesa Goa.
    2. While computing the taxable business income under the Act, various deductions are allowed for expenses that are incurred for the purpose of the business.

    Certain deductions are allowed on the satisfaction of certain conditions. Among these, expenses that are in the nature of ‘rate’ or ‘tax’ are specifically disallowed under section 40(a)(ii) of the Act while computing the business income. Therefore, a question arises as to whether ‘cess’ on income tax would be considered as a ‘tax’ so (1) as to qualify for an item of disallowance under section40(a)(ii) or it is separate from ‘tax’ and hence is an allowable expenditure from computing business income.

    This question arises in the context of provisions of section 40(a)(ii) which inter alia provides that notwithstanding anything to the contrary in sections 30 to 38 of the Income-tax Act, 1961, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”.

    – (a) In the case of any assessee – (ia) (ib), (ic), (ii) Any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains.

    From the aforesaid provisions of section 40(a)(ii), it is quite clear that any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed as a proportion of, or otherwise on the basis of any such profits and gains, will not be allowable as a deduction in the computation of income chargeable under the head “Profits and gains of business or profession”.

    It may also be stated here that even rate or tax assessed as a proportion of or otherwise on the basis of any such profits and gains, also falls within the mischief of section 40(a)(ii) of the Act. The judgment in the case of A.V. Thomas & Co. Ltd v. CIT 159 ITR 431 (Ker) relates to the issue of whether a surtax is a charge on income and a levy on the profits and gains of business and whether the same could be allowed as a deduction under section 37 of the Act, r.w.s.40(a)(ii) of the Act.

    1. It was held in this case that surtax is an application of profits and gains of business after they have been earned and it is not an expenditure laid out or expended for the purposes of business and therefore, not an allowable deduction.
    2. Therefore, whether or not the amount in question, comes within the express prohibition contained in section 40(a)(ii), the claim for deduction of surtax in computing the total income of an assessee, is not allowable.

    It may also be stated here that the aforesaid judgment of the Kerala High Court has been affirmed by the Supreme Court, in the case of Smith Kline and French (India) Ltd v. CIT 219 ITR 581 (SC). Health And Education Cess For Ay 2021-22 It may also be stated here that in the aforesaid judgment of the Supreme Court, the case of Jaipuria Sarnia Amalgamated Collieries Ltd v. CIT 82 ITR 580 (SC), has also been considered. The aforesaid criteria applied by the Kerala High Court to the charge of the surtax is equally applicable to the charge of education cess, in view of the following reasons: 1.

    Both types of education cess are charged under section 2 of Chapter II of the Finance Act, as an additional surcharge and the same are calculated at the rate of 2% and 1% of income-tax plus surcharge, respectively, As per section 2(1) of Chapter II of the Finance Act, income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax shall be increased by a surcharge for the purposes of Union, calculated in each case in the manner provided therein.

    Thus, the surcharge is nothing but a part of the tax.2. Thus, the education cess is a levy on the total income, computed under the Income-Tax Act. It is an application of the profits and gains of the business, after they have been earned, 3. Therefore, any amount paid on account of the education cess is not an expenditure laid out or expended for the purposes of the business.

    1. In the case SRD Nutrients Private Limited v.
    2. Commissioner of central excise reported in, the Hon’ble Supreme Court, while examining the issue of “whether the Education Cess and Higher Education Cess which were paid along with the excise duty were liable to be refunded along with the central excise duty in terms of the exemption notifications”, elucidated on the nature of Cess levied on Excise Duty or Service Tax under Central Excise Act or Finance Tax and held it to be in nature of excise duly approving the Hon’ble Rajasthan High Court judgment in the case Banswara Syntex Ltd v.

    Union of India reported in, wherein it was held that “15. The very fact that the surcharge is collected as part of a levy under three different enactments goes to show that the scheme of levy of Education Cess was by way of collecting special funds for the purpose of Government projects towards providing and financing universalized quality of basic education by enhancing the burden of Central Excise Duty, Customs Duty, and Service Tax by way of charging a surcharge to be collected for the purpose of Union.

    It was made clear that in respect of all three taxes, the surcharge collected along with the tax will bear the same character of respective taxes to which the surcharge was appended and was to be governed by the respective enactments under which Education Cess in the form of surcharge is levied & collected.” In the case of CIT v.

    International Instruments P. Ltd.144 ITR 936 (Kar) the Division Bench of the Karnataka High Court held that the surtax levied on the chargeable profits under the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as the “Surtax Act”) was nothing but an additional tax on the profits and (1) gains of an assessee’s business and since surtax was a charge on the profits and gains of the business of companies, the company was not entitled to claim a deduction of surtax payable by it in computing its total income under the Income-tax Act.

    In the Molins of India Ltd v. CIT 144 ITR 317, the Calcutta High Court held that the tax imposed by the companies (Profits) Surtax Act,1964 was essential of the same character as income-tax or excess profits tax and liability – to pay this tax depends upon whether profits are made or not. The Division Bench of the Calcutta High Court also held that surtax was not also allowable in view of the provisions of section 40(a)(ii) of the Income-tax Act, 1961, and the term “tax” in the said provision could not be understood to mean only income-tax.

    It was held that the tax sought to be imposed on a company by the Companies (Profits) Surtax Act comes within the mischief of section 40(a)(ii). The decision of the Madras High Court in the case of Sundaram Industries Ltd.v. CIT reported in (1986) 159 ITR 646 is noteworthy to consider.

    The relevant Para from the above judgment is reproduced below “13. With regard to the construction of section 40(a)(ii), the Calcutta High Court pointed out that the preamble of the Surtax Act stated that the Act was to impose a special tax on the profits of certain companies. It was held that the surtax imposable has to be calculated on the basis of the total income of the assessee company after- making statutory adjustments and if the tax that is sought to be imposed is not on the profits or gains of the business of the assessee.

    it is certainly levied on the basis of the profits or gains made by the assessee company in its business and, therefore, it could not be said that the tax sought to be imposed by the Surtax Act will not come within the mischief of section 40(a)(ii)of the Income-tax Act.” The Calcutta High Court also negated the argument that the definition of “tax” in section 2(43) must be read in section 40(a)(ii) of the Act.

    The relevant observations are as follows (p.328 of 144 ITR) “We are unable to accept the contention that ‘tax’ in s.40(a)(ii) must be understood to mean only income-tax. The definition is given in s.2(43) only will apply ‘unless the context otherwise requires. The expression ‘any rate or tax’ in s.40(a)(ii) means any rate or any tax and not income tax only.

    That section is not confined to income- tax only is made clear by the words ‘levied on the profits or gains of any business or profession or assessed at a proportion of or otherwise on the basis of any such profits or gains.” In the light of the discussion in the preceding paragraphs, it is clearly established that: a.

    • Education cess, as contemplated under the Chapter II of the Finance Act is nothing but an additional surcharge which, in turn, is nothing but tax chargeable under the Act.
    • The education cess is nothing more than an apportionment of profits after they have arisen.
    • In other words, it is not a charge on the profits, but an allocation or an apportionment that is made thereafter.

    Besides, the education cess is not relatable to the carrying on of the business of the assessee, because if the assessee suffers a loss or does not have any chargeable profits, then no education cess is payable but the assessee can carry on his business activity.

    • In other words, the Education Cess is chargeable only in the event of chargeable profits being there and not otherwise.
    • Hence, the Education Cess is a tax for the purpose of section 40(a)(ii) and hence is not allowable as a deduction from computing the profits or gains of any business or profession.
    • Accordingly, the ‘education cess’ fails the fundamental tests of deductibility u/s 37 and is also hit by the mischief of section 40(a)(ii) of the Income-tax Act, 1961.

    Hence, the amendment vide Finance Act, 2022 should be seen as a clarification that has retrospective applicability. : Health & Education Cess not allowed as business expenditure – Section 37?
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    What is the purpose of cess tax?

    Cess tax in India – Types of Cess after implementation of GST GST Compensation Cess, National Calamity Contingent Duty on Tobacco and Tobacco Products, Building and Other Construction Workers Welfare Cess, Road and Infrastructure Cess, Health and Education Cess, Cess on Crude Oil, Cess on Exports are the different types of cess in India.

    • The Union Government can impose cess in India, but before imposing it, a legislation has to be formulated and passed in the Parliament of India.
    • The purpose of the cess has to be clear in the legislation.
    • State Governments wanted to impose sugar cess on GST, Kerala Government wanted to impose cess on GST, but these cess can be levied only after approval of GST Council.

    Surcharge is calculated on the total tax amount only, whereas cess is calculated on total tax and surcharge amount. Cess is a tax on tax collected for a specific purpose, for example, education cess collected has to be spent on education, whereas surcharge is a tax on tax and not levied for any particular purpose.
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    What is the purpose of cess?

    Cess Look up in Wiktionary, the free dictionary. For the hamlet in Norfolk, England, see, For the railway term, see, Cess (pronounced ) is a that is generally levied for promoting services like health and education. Governments often charge cess for the purpose of development in social sectors.

    • The word is a shortened form of “assess”.
    • The spelling is due to a mistaken connection with census,
    • It was the official term used in when it was part of the, but has been superseded by “”.
    • The term was formerly particularly applied to local taxation.
    • In the, it was applied, with a qualifying prefix, to any taxation, such as irrigation-cess and educational-cess.

    They are collectively referred to as “cesses” in government censuses: “land revenue and cesses”.

    • In modern India, it refers to a tax earmarked for a particular purpose, such as education, and is levied as an additional tax on the basic tax liability.
    • In, it refers to the that was enacted there in 1665 and continued to be levied until the 18th century.
    • The term is used by the rubber industry in to refer to rubber export tax, which funds that country’s Office of Rubber Replanting Aid Fund.
    • It has also been used by the Ministry of Agriculture and Fisheries to denote a tariff on imports.

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    When health and education cess is not applicable?

    Health & Education Cess not allowed as business expenditure – Section 37? As per the recent Amendment introduced through Finance Act 2022, ‘Health and Education Cess’ is not allowed as business expenditure for the computation of business income. The ‘Health and Education Cess’ is imposed as an additional surcharge on the taxpayer for funding specific government welfare programs and is part of income tax.

    • Please note that cess, surcharge, and surtax are of similar nature and have been used interchangeably in this note.
    • Legal Provisions
    • Section 37 of the Income Tax Act, 1961 (” Act “) provides for the allowability of revenue and non-personal expenditure (other than those failing under sections 30 to 36) laid out or expended wholly and exclusively for the purposes of business or profession.
    • As per Section 40, (a)(ii) of the Act, any sum paid on account of any rate or tax levied on the profits and gains of business is not deductible in computing the income chargeable under the head ‘Profits and gains of business or profession’.

    Similarly, Section 2(43) of the Act, defines ‘tax’ to mean income-tax chargeable under the provisions of the Act at the rates specified in part I of the First Schedule. Such tax shall be increased by a surcharge, for the purposes of the Union, calculated in each case in the manner provided therein.

    1. “Section 4 of the Income Tax Act, of 1961 provides for the levy of tax:
    2. “(1) Where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income tax at that rate those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax)of, this Act in respect of the total income of the previous year of every person; Chapter II of every Finance Act provides “Rates of income-tax” chargeable for the relevant assessment year.”
    3. What is cess?

    The abovementioned provisions were explained by the Hon’ble Supreme Court in CIT v.K. Srinivasan 83 ITR 346 (SC) asunder: “the above legislative history of the Finance Acts, as also the practice, would appear to indicate that the term “income-tax” as employed in s.2 includes surcharge as also the special and the additional surcharge whenever provided within the meaning of Art.271 of the Constitution.

    1. The phraseology employed in the Finance Acts of 1940 and 1941showed that only the rates of income tax and super tax were to the increased by a surcharge for the purpose of the Central Government.
    2. In the Finance Act of 1958, the language used showed that the income tax that was to be charged was to be increased by a surcharge for the purposes of the Union.

    The word “surcharge” has thus been used to either increase the rates of income tax and super-tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term “income tax” as used in s.2 includes a surcharge.” The Education Cess which was introduced vide section 2 of the Finance Act 2004 and is an additional surcharge for the purposes of the Union to meet their financial priorities in the health and education sector.

    The base tax, surcharge, and additional surcharge also known as Education Cess, therefore, comprise the total income-tax payable on the income by an assessee. Both the surcharges are levied for the specific purposes of the Union and constitute the total income tax. The above legal position has been affirmed in various decisions of the Hon’ble ITAT.

    For instance, the bench at Hyderabad in the case of Virtusa (India) Private Limited dated 04.03.2016 and Hon’ble Chandigarh ITAT in M/s Steel Strips Wheels Ltd.v. DCIT (CPC), Bangalore dated 18.03.2020 has reaffirmed this position. Application of Section 37(1) of the Act When one looks at the scheme of the Act and examines the interplay of the provisions of section 40(a)(ii) and section 37(1), it is clear that first, the expense must pass through the anvil of Section 37(1), only then an examination under section 40(a)(ii) of the Act is made.

    • This is clearly evident from section 40(a)(ii) which starts with a non-obstante clause, which reads as follows: “40.
    • Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,- 1.

    In the case of any assessee-(ii) any sum paid on account of any rate of tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains.” The effect of the non-obstante clause in section 40 is that the allowability of a deduction u/s 40(a)(ii) shall be barred if it is otherwise allowable under any of the provisions contained in sections 30 to 38.

    1. However, if it does not pass the criteria of allowability u/s 30 to 38 at the threshold, that is the end of the matter and there is no need to go back to section 40(a)(ii).
    2. In view of this, the allowability of education cess shall have to be examined first under the terms of section 37(1) i.e.
    3. Whether the said expenditure has been ‘laid out or expended wholly and exclusively for the purposes of business or profession.

    The fundamental question, therefore, which arises for consideration is whether an education cess is an expenditure ‘laid out or expended wholly and exclusively for the purposes of business or profession. The answer to this question is clearly negative because ‘education cess’ is not expenditure at all,

    Rather, it is a charge upon the profits, similar to income tax. Any expenditure to earn a profit cannot be a part of the profit itself. It is an application of an income and not an expenditure ‘laid out or expended wholly and exclusively for the purposes of business or profession so as to pass the tests envisaged u/s 37(1).

    In this relation, the Hon’ble Gujarat High Court in S.L.M. Maneklal Industries Ltd.v. CIT 39 Taxman 42(Gujarat), has held that surcharge was not an expenditure ‘‘laid out or expended wholly and exclusively for the purposes of business or profession u/s 37(1) of Act.

    1. The payment of surtax or surcharge has nothing to do with the conduct of the business of the assessee.
    2. It was not an expenditure incurred for the purpose of business or for the purpose of earning profit.
    3. It is only after the profit or income is earned that, as pointed out above, the question of payment of surtax would arise.

    It is an event that takes place after the income is earned not in the course of or in the process of earning income. It is out of the profits or income earned that surtax is to be paid. In other words, payment of surtax is the application of the profits after they are earned.

    • As discussed above, a surtax is levied on excess chargeable profits computed in the manner laid down in the Act.
    • It is a levy on the total income computed under the Act after it is adjusted in accordance with the First Schedule to the Act.
    • The computation of income for the purpose of the Act has to precede the assessment of surtax under the Act.

    Therefore, surtax stands on the same footing as income tax on the total income computed under the Act. Payment of both income tax and surtax is the application of income after it is earned and not expenditure incurred for the purpose of business. It is not a deduction before one arrives at the profits inasmuch as it is not payment for the purpose of earning profit.

    • Since payment of surtax is not an allowable deduction under section 37, the question of whether it comes within the mischief of section 40(a)(ii) does not arise.
    • In other words, it is not necessary to consider whether the prohibition contained in section 40(a)(ii) is applicable to the payment of surtax.

    This view was also taken by the Calcutta High Court in CIT in Molins of India Ltd.V. CIT 144 ITR 317, the Karnataka High Court in CIT v. International Instruments (P) Ltd 144 ITR 936, Full bench of the Kerala High Court in A.V. Thomas & Co. CIT 159 ITR 431 and Madras High Court in Sundaram Industries Ltd.v.

    CIT 159 ITR 646. The ‘education cess’ fails the test of deductibility at the first stage itself under the terms of section 37(1) and, therefore there is no further need to examine embargo u/s 40(a)(ii). Application of Section 40(a)(ii) of Act A different approach was adopted by the Courts in the Sesa Goa v.

    JCIT case where the Bpmbay High Court simply assumed the allowability of ‘education cess’ as an expenditure ‘laid out or expended wholly and exclusively for the purpose of business or profession’ u/s37(1) and instead proceeded to examine the prohibition contained in section 40(a)(ii).

    This brings us to section 40(a)(ii) of the Act and even if one were to assume the deductibility of ‘education cess’ u/s 37(1) of the Act, the question arises whether the bar contained in section40(a)(ii) operates qua ‘education cess’. To put it simply, the real question would be to see whether ‘education cess’ is taxable so as to fall within the mischief of Section 40(a)(ii) of the Act.

    It may be noticed at the outset that education cess was introduced as an additional surcharge as explained in the ‘Explanatory Memorandum to Finance Bill, 2012. The relevant excerpt from the said Memorandum reads as follows: “(2) Education Cess- for the assessment year 2012-13, an additional surcharge called the “Education Cess on income tax and “Secondary and Higher Education Cess on income tax” shall continue to be levied at the rate of two percent and one percent, respectively, on the amount of tax computed, inclusive of surcharge, in all cases.

    • No marginal relief shall be available in respect of such Cess.” An ‘additional surcharge’ is, therefore, nothing but a tax’, as held by a three-judge Bench of the Hon’ble Supreme Court in CIT v K Srinivasan 83 ITR 346 (SC).
    • The following words of Grover, J elucidate the law in unequivocal terms.
    • In our judgment, it is unnecessary to express any opinion in the matter because the essential point for determination is whether a surcharge is an additional made or rate for charging income tax.

    If that meaning is applied to s 2 of the Finance Act 1963 it would lead to the result that income tax and super tax were to be charged in four different ways or at four different rates which may be described as (i) the basic charge or rate (in part I of the First Schedule); (ii) Sur-charge; (iii) special surcharge and (iv)additional surcharge calculated in the manner provided in the Schedule.

    1. Read in this way the additional charge forms a part of the income tax and super tax.” This judgment in K Srinivasan cited above, however, was not considered by the Bombay High Court in Sesa Goa.
    2. While computing the taxable business income under the Act, various deductions are allowed for expenses that are incurred for the purpose of the business.

    Certain deductions are allowed on the satisfaction of certain conditions. Among these, expenses that are in the nature of ‘rate’ or ‘tax’ are specifically disallowed under section 40(a)(ii) of the Act while computing the business income. Therefore, a question arises as to whether ‘cess’ on income tax would be considered as a ‘tax’ so (1) as to qualify for an item of disallowance under section40(a)(ii) or it is separate from ‘tax’ and hence is an allowable expenditure from computing business income.

    This question arises in the context of provisions of section 40(a)(ii) which inter alia provides that notwithstanding anything to the contrary in sections 30 to 38 of the Income-tax Act, 1961, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”.

    – (a) In the case of any assessee – (ia) (ib), (ic), (ii) Any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains.

    From the aforesaid provisions of section 40(a)(ii), it is quite clear that any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed as a proportion of, or otherwise on the basis of any such profits and gains, will not be allowable as a deduction in the computation of income chargeable under the head “Profits and gains of business or profession”.

    It may also be stated here that even rate or tax assessed as a proportion of or otherwise on the basis of any such profits and gains, also falls within the mischief of section 40(a)(ii) of the Act. The judgment in the case of A.V. Thomas & Co. Ltd v. CIT 159 ITR 431 (Ker) relates to the issue of whether a surtax is a charge on income and a levy on the profits and gains of business and whether the same could be allowed as a deduction under section 37 of the Act, r.w.s.40(a)(ii) of the Act.

    It was held in this case that surtax is an application of profits and gains of business after they have been earned and it is not an expenditure laid out or expended for the purposes of business and therefore, not an allowable deduction. Therefore, whether or not the amount in question, comes within the express prohibition contained in section 40(a)(ii), the claim for deduction of surtax in computing the total income of an assessee, is not allowable.

    It may also be stated here that the aforesaid judgment of the Kerala High Court has been affirmed by the Supreme Court, in the case of Smith Kline and French (India) Ltd v. CIT 219 ITR 581 (SC). Health And Education Cess For Ay 2021-22 It may also be stated here that in the aforesaid judgment of the Supreme Court, the case of Jaipuria Sarnia Amalgamated Collieries Ltd v. CIT 82 ITR 580 (SC), has also been considered. The aforesaid criteria applied by the Kerala High Court to the charge of the surtax is equally applicable to the charge of education cess, in view of the following reasons: 1.

    Both types of education cess are charged under section 2 of Chapter II of the Finance Act, as an additional surcharge and the same are calculated at the rate of 2% and 1% of income-tax plus surcharge, respectively, As per section 2(1) of Chapter II of the Finance Act, income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax shall be increased by a surcharge for the purposes of Union, calculated in each case in the manner provided therein.

    Thus, the surcharge is nothing but a part of the tax.2. Thus, the education cess is a levy on the total income, computed under the Income-Tax Act. It is an application of the profits and gains of the business, after they have been earned, 3. Therefore, any amount paid on account of the education cess is not an expenditure laid out or expended for the purposes of the business.

    In the case SRD Nutrients Private Limited v. Commissioner of central excise reported in, the Hon’ble Supreme Court, while examining the issue of “whether the Education Cess and Higher Education Cess which were paid along with the excise duty were liable to be refunded along with the central excise duty in terms of the exemption notifications”, elucidated on the nature of Cess levied on Excise Duty or Service Tax under Central Excise Act or Finance Tax and held it to be in nature of excise duly approving the Hon’ble Rajasthan High Court judgment in the case Banswara Syntex Ltd v.

    Union of India reported in, wherein it was held that “15. The very fact that the surcharge is collected as part of a levy under three different enactments goes to show that the scheme of levy of Education Cess was by way of collecting special funds for the purpose of Government projects towards providing and financing universalized quality of basic education by enhancing the burden of Central Excise Duty, Customs Duty, and Service Tax by way of charging a surcharge to be collected for the purpose of Union.

    It was made clear that in respect of all three taxes, the surcharge collected along with the tax will bear the same character of respective taxes to which the surcharge was appended and was to be governed by the respective enactments under which Education Cess in the form of surcharge is levied & collected.” In the case of CIT v.

    International Instruments P. Ltd.144 ITR 936 (Kar) the Division Bench of the Karnataka High Court held that the surtax levied on the chargeable profits under the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as the “Surtax Act”) was nothing but an additional tax on the profits and (1) gains of an assessee’s business and since surtax was a charge on the profits and gains of the business of companies, the company was not entitled to claim a deduction of surtax payable by it in computing its total income under the Income-tax Act.

    In the Molins of India Ltd v. CIT 144 ITR 317, the Calcutta High Court held that the tax imposed by the companies (Profits) Surtax Act,1964 was essential of the same character as income-tax or excess profits tax and liability – to pay this tax depends upon whether profits are made or not. The Division Bench of the Calcutta High Court also held that surtax was not also allowable in view of the provisions of section 40(a)(ii) of the Income-tax Act, 1961, and the term “tax” in the said provision could not be understood to mean only income-tax.

    It was held that the tax sought to be imposed on a company by the Companies (Profits) Surtax Act comes within the mischief of section 40(a)(ii). The decision of the Madras High Court in the case of Sundaram Industries Ltd.v. CIT reported in (1986) 159 ITR 646 is noteworthy to consider.

    • The relevant Para from the above judgment is reproduced below “13.
    • With regard to the construction of section 40(a)(ii), the Calcutta High Court pointed out that the preamble of the Surtax Act stated that the Act was to impose a special tax on the profits of certain companies.
    • It was held that the surtax imposable has to be calculated on the basis of the total income of the assessee company after- making statutory adjustments and if the tax that is sought to be imposed is not on the profits or gains of the business of the assessee.

    it is certainly levied on the basis of the profits or gains made by the assessee company in its business and, therefore, it could not be said that the tax sought to be imposed by the Surtax Act will not come within the mischief of section 40(a)(ii)of the Income-tax Act.” The Calcutta High Court also negated the argument that the definition of “tax” in section 2(43) must be read in section 40(a)(ii) of the Act.

    1. The relevant observations are as follows (p.328 of 144 ITR) “We are unable to accept the contention that ‘tax’ in s.40(a)(ii) must be understood to mean only income-tax.
    2. The definition is given in s.2(43) only will apply ‘unless the context otherwise requires.
    3. The expression ‘any rate or tax’ in s.40(a)(ii) means any rate or any tax and not income tax only.

    That section is not confined to income- tax only is made clear by the words ‘levied on the profits or gains of any business or profession or assessed at a proportion of or otherwise on the basis of any such profits or gains.” In the light of the discussion in the preceding paragraphs, it is clearly established that: a.

    1. Education cess, as contemplated under the Chapter II of the Finance Act is nothing but an additional surcharge which, in turn, is nothing but tax chargeable under the Act.
    2. The education cess is nothing more than an apportionment of profits after they have arisen.
    3. In other words, it is not a charge on the profits, but an allocation or an apportionment that is made thereafter.

    Besides, the education cess is not relatable to the carrying on of the business of the assessee, because if the assessee suffers a loss or does not have any chargeable profits, then no education cess is payable but the assessee can carry on his business activity.

    In other words, the Education Cess is chargeable only in the event of chargeable profits being there and not otherwise. Hence, the Education Cess is a tax for the purpose of section 40(a)(ii) and hence is not allowable as a deduction from computing the profits or gains of any business or profession. Accordingly, the ‘education cess’ fails the fundamental tests of deductibility u/s 37 and is also hit by the mischief of section 40(a)(ii) of the Income-tax Act, 1961.

    Hence, the amendment vide Finance Act, 2022 should be seen as a clarification that has retrospective applicability. : Health & Education Cess not allowed as business expenditure – Section 37?
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    Is health and education cess applicable to all assessees?

    Consider Example (A) and (B) – Example : (A) Taxpayer : Mr. Active, 54 years having total income of Rs.50,00,000.

    Particulars Rs.
    Tax on Rs.50,00,000 Add: Surcharge Sub-total 13,12,500 Nil
    13,12,500

    Example : (B) Taxpayer: Mr. Passive, 55 years having total income of Rs.50,50,000.

    Particulars Rs.
    Tax on Rs.50,50,000 13,27,500
    Add: Surcharge (10%) 1,32,750
    Sub-total 14,60,250

    Now, as compared to Example (A), in Example (B), income is increased by Rs.50,000, while tax is increased by Rs.1,47,750, therefore, there is a need for marginal relief. Under marginal relief, tax liability of Rs.50,50,000 is restricted as under :- Tax on 50,50,000 = Tax on 50,00,000 + (Total Income – Rs.50,00,000) = Tax on 50,00,000+ (50,50,000-Rs.50,00,000) = 13,12,500 + 50,000 = 13,62,500 The above tax is increased by health and education cess J EASY STEPS to compute Final tax liability when total income of Individual ranges between Rs.50,00,001 to Rs.1,00,00,000.

    1.3 HEALTH AND EDUCATION CESS (HEC)

    Health and Education cess (HEC)” is to be calculated at the rate of 4% of income-tax and surcharge. HEC is applicable to all assessees i.e., individuals, HUFs, AOP/BOIs, co-operative societies, firms, LLPs, local authorities and companies. The format of computation of HEC is as under: –

    (a) Income Tax (b) Add: Surcharge on Income Tax (if any) (c) Sub-Total (a+b) (d) Health and Education cess @ 4% on (c) (e) Total Tax payable (c+d) XXXXX XXXXX
    XXXXX XXXXX
    XXXXX

    Note: No marginal relief would be available in respect of such cess.
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    When health and education cess is applicable to?

    Generally, cess is expected to be levied when there is a need to meet specific expenditure for public welfare and discontinued once the government gets enough funds for that purpose. The 4% health and education cess is the same for everybody, irrespective of which income tax slab one falls in.
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    Is health and education cess deducted from salary?

    What is an Education Cess? – This section was tweaked slightly in 2018’s Union Budget. Following is a look at the pre-2018 scenario and then at the current scenario for better understanding. On analysing tax payments over the last decade, individuals will notice that each year, a small amount is taxed over and above their basic tax output.

    • This amount mostly comprises a number of types of cesses, one of which is an education cess,
    • Before 2018, this cess had two components: A Primary Education Cess and an additional Secondary and Higher Education Cess,
    • Both these components were used to make India’s burgeoning education sector robust and modern.

    Note that any cess, including education cess, is never deducted from an individual’s salary. It is instead deducted from his or her tax payable. Even corporations have to pay this cess each year at rates determined during the, Therefore, education cess on income tax is an accurate description of this extra outflow.

    • Also, before 2018, the total education cess was fixed at 3% of an individual’s tax payable.
    • This had been the norm for many years.
    • In 2018, the Central Government increased this cess to 4% of taxes payable for both individuals and corporate.
    • This increased cess was named health and education cess,
    • As is obvious, this extra amount collected would be used for the betterment of both the health and the educational infrastructure of far-flung villages and smaller towns where proper schools were missing.

    A health and education cess serve a lot more fields than its predecessor. Surveys have found that the top reason for school drop-outs was a lack of high-quality mid-day meals. It is expected that this 4% cess, introduced throughout India, will have enough firepower to address drop-outs and contribute to improving India’s literacy rate from the present 77.7%.
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