Since independence, India has transformed a lot in terms of taxation. Although the Indian taxation system is still considered as quite complex and have several components to it, successive governments have tried to rationalize and simplify the taxation process. This has resulted into better compliance, ease of tax payment and better enforcement. These taxes are extracted by Central Government, State Government as well as local bodies. One of the taxes that Government of India introduced in 2004 was Education Cess tax. The proposal was to levy this tax from almost all major taxes that were extracted by central or state government. With the imposition of this tax, government of India expected to fetch around 5000 crore rupees every year from tax-payers.
As per the proposal made in Section 95 of Finance Act, 2004, this tax was to be levied at the rate of 2% of income tax inclusive of the existing surcharge. It was decided that this cess will also be applicable to all the taxes deducted at source, taxes collected at source, tax on dividend distributed by domestic companies and tax on income distributed by mutual funds. While proposing this tax, the then Finance Minister clarified that this tax is levied on the grounds of commitment that government has made to provide universal access to quality basic education. Despite getting approval from President of India in September 2004 this additional tax was brought in effect from April 1st, 2004. Since its effectiveness, the education cess charge had become an issue of debate all over the country and beyond as well and most of the comments coming in were in its favour. Recently world’s best health economist Dr. Anne Mills from London School of Hygiene and Tropical Medicine praised the education cess policy as she said that education cess charge levied by Government of India could also be used in funding India’s plan to provide universal health cover to all.
While extracting excise duties, education cess is levied at the rate of 2%. Even while imposing customs duty on imported goods, education cess is imposed at the same rate. With service tax, this is levied at the rate of 2% on some identified taxable services provided by service providers in India. Same is the case with corporate tax levied in India; that education cess charge is levied at the rate of 2%. Anyone having residence in India, have permanent address or are established in India are liable to pay this education cess tax.