Know Here How Much More Tax Will You Pay Due To Higher Cess …
Feb 05, 2018

Author: PersonalFN Content & Research Team


Disappointment about lesser entitlements in the Budget 2018-19 is spreading like viral fever among middle-income groups.

Citizens earning a salary had high hopes from the Finance Minister, but their aspirations were dashed completely. The government has reintroduced the standard deduction of Rs 40,000.

However, this doesn’t provide much relief to salaried people as deductions such as transport allowance and the reimbursement of miscellaneous medical expenses would be discontinued.

Cesses—taxes collected over and above normal taxes to fulfil specific objectives—are going up incessantly. And the list of tax deductions and exemptions has remained more or less static. In Budget 2018-19, the government has proposed to replace the existing 3% education cess with 4% education and healthcare cess.  This move is expected to fetch additional revenue of Rs 11,000 crore.

Fund allocation to education and healthcare…

  Budget Estimates (Rs in crore)
Ministry 2016-17 2017-18 2018-19
Department of School Education and Literacy 42,889 46,356 50,000
Department of Higher Education 29,026 33,330 35,010
Department of Health and Family Welfare 37,671 47,353 52,800
Department of Health research 1,324 1,500 1,800
(Source: Budget 2018-19)

Since a cess is collected as a tax on tax, the impact of 1% hike may not make much a difference to individual taxpayers.  Depending on the tax slab you fall under, your tax liability is likely to increase by an amount ranging from Rs 100 to Rs 2,600. This budget has left tax slabs and tax rates unchanged.

Impact of 1% increase in education and healthcare cess…

Category Tax Slab Maximum possible increase in tax liability (Rs)
Citizens below 60 5% 125
20% 1,125
30% 2,625
Senior citizens (those above 60 but below 80 5% 100
20% 1,100
30% 2,600
Very senior citizens (80 and above) 20% 1,000
30% 2,500

What the government intends to do with money allocated to the healthcare and education sector?

  • The government plans to come up with district-wise strategy to improve the quality of education.
  • It aims to train teachers adequately and has already initiated an integrated B.Ed. programme. Using modern technology, it aims to help teachers upgrade their skills.
  • The government is systematically planning to make a gradual shift from ‘black boards’ to ‘digital boards’.
  • It is pondering on launching an ambitious initiative — ‘‘Revitalising Infrastructure and Systems in Education (RISE) by 2022’’. This mission will have an estimated funding requirement of Rs 1 lakh crore which is to be fulfilled over next 4 years.
  • The government endeavours to increase the number of education institutes of eminence. The government is planning to start around 20 Schools of Planning and Architecture (SPAs) out of which 18 would be set up under IITs and NITs as autonomous schools.

How the healthcare sector will benefit from Budget 2018?

  • The government aims to provide better healthcare facilities to economically unprivileged families.
  • It plans to improve the access to the affordable healthcare by opening 1.5 healthcare centres across the country and provide free medicines and diagnostic services. The government has allocated Rs 1,200 crore for this programme. It has also appealed to corporate and philanthropic groups to participate this programme by making voluntary contributions as a part of Corporate Social Responsibility (CSR) activities or even otherwise.  
  • The government aims to offer a cover upto Rs 5 lakh per family under National Health Protection Scheme. Nearly 50 crore people are likely to benefit from this flagship programme.
  • It wants to establish 24 new medical colleges—at least one in each state and also upgrade the district hospitals. These initiatives together may help improve the accessibility and quality of healthcare in India.

Healthcare and education are two cornerstones of inclusive economic growth. Therefore, higher spending on the upliftment of masses would help bridge the uneven distribution of wealth.

Nonetheless, a detailed assessment suggests that, the government is depending only on incremental taxes collected from the middle and higher income groups.

If taxes and cesses continue to rise, it will affect the rate of household savings and will eventually hurt domestic demand. Moreover, effectiveness of the implementation of government-run schemes is a debatable subject.

While taxpayers may not mind paying a couple thousand bucks more for a sustainable and inclusive economic growth, the government shouldn’t keep going back to the same set of taxpayers and try to recover higher taxes.

It must try to increase the taxpayers’ base. Even today, less than 10% Indians pay direct taxes.

The taxpayers can only hope 4% cess doesn’t become 10% one day.  

If you are wondering how should you save taxes, download now PersonalFN's Comprehensive Guide to Tax Planning.


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