Definition
Health and Education Cess
The health and education cess is a small percentage added on top of your income tax plus surcharge to fund health and education programmes.
The health and education cess is levied as a flat percentage of your income tax plus any surcharge. It is the final addition in the tax computation and applies to virtually all taxpayers, not just high earners.
Because it is charged on the tax (and surcharge), not on income, its rupee impact grows with your tax liability. It is earmarked notionally for government spending on health and education.
When people quote an effective tax rate, the cess is part of why the headline slab rate understates what you actually pay.
Related terms
- Income Tax SlabIncome tax slabs are the income bands at which progressively higher tax rates apply, so higher earnings are taxed at higher rates.
- Marginal ReliefMarginal relief limits the extra tax (including surcharge) so that a small rise in income just past a threshold does not increase total tax by more than the additional income itself.
- SurchargeA surcharge is an extra levy charged on top of your income tax once your total income crosses high-income thresholds.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.