Union Budget 2018: Arun Jaitley hikes Education and Healthcare cess, you will pay extra now

Budget 2018: Finance Minister Arun Jaitley in his Budget speech today proposed to increase the cess on personal income tax and corporation tax to 4% from the existing 3%. The move may help the government take care of the healthcare and education needs of BPL and rural families.

FM Arun Jaitley presents Union Budget 2018 today.
Union Budget 2018: According to tax experts, FM Arun Jaitley didn't make any changes in the present tax slabs or the tax rate. (ANI)

Union Budget 2018: Finance Minister Arun Jaitley in his Budget speech today proposed to increase the cess on personal income tax and corporation tax to 4% from the existing 3%. The move may help the government take care of the healthcare and education needs of BPL and rural families. However, what about taxpayers?

“Currently, as per Income Tax provisions, 3% Education Cess is levied on personal income tax. FM Arun Jaitley in his union budget 2018 speech today announced the increase in cess by 1%, in the name of Health Cess, making it effectively 4% ‘Health and Education Cess’. However, while this move will take care of the healthcare and education needs of BPL and rural families, it will increase the tax liability of both individuals and corporates. For instance, during the Financial Year 2017-18, if the total tax liability of an individual taxpayer is Rs120,000, then the cess liability would be Rs 3,600. However, considering the same tax liability in FY2018-19, the cess liability would go up to Rs 4,800,” said CA Anurag Sodhani, consultant, Big4.

Reacting to the increase in education cess in Budget 2018, Aditya Modani, Tax Director, EY India, said, “The levy of Health and Education Cess would help the Government in garnering revenue for its healthcare program under the National Health Protection Scheme.”

The Finance Bill 2018 proposes to abolish the Education and Secondary Education Cess of 3% and introduced a new Health and Education Cess on income tax and surcharge (as applicable) at a rate of 4%. This levy will enable the Government to collect an estimated additional amount of INR 11,000 Crores. Powered by EY
For individuals (both resident and non resident) who at any time during the Financial Year is below the age of 60 years Amounts (in INR)
Taxable Income Range Tax Rates Taxable Income Tax amount as per Current Structure (including 2% of Education Cess and 1% of Secondary and Higher Education Cess on Income-tax and Surcharge*) (A) Tax amount as per Proposed Structure (including 4% of Health and Education Cess on Income- tax and Surcharge*) (B) Net tax impact (Increase/(Decrease)) = (B)-(A)
Income from upto 2,50,000 No Tax 250,000 0 0 0
Income from 2,50,001 to 5,00,000 5% of amount by which the taxable income exceeds 2,50,000* 500,000 12,875 13,000 125
Income from 5,00,001 to 10,00,000 12,500 plus 20 % of the income over 5,00,000 1,000,000 115,875 117,000 1,125
Income from 10,00,001 to 50,00,000 1,12,500 plus 30% of the income above 10,00,000 1,500,000 270,375 273,000 2,625
Income from 50,00,001 to 1,00,00,000 1,12,500 plus 30% of the income above 10,00,000 6,000,000 1,826,963 1,844,700 17,737
Income from 1,00,00,001 and above 1,12,500 plus 30% of the income above 10,00,000 11,000,000 3,686,756 3,722,550 35,794
For resident individuals who at any time during the Financial Year is 60 years or more but less than 80 years
Taxable Income Range Tax Rates Taxable Income Tax amount as per Current Structure (including 2% of Education Cess and 1% of Secondary and Higher Education Cess on Income-tax and Surcharge*) Tax amount as per Proposed Structure (including 4% of Health and Education Cess on Income- tax and Surcharge*) Net tax impact (Increase/(Decrease)) = (B)-(A)
Income upto 3,00,000 No Tax 300,000 0 0 0
Income from 3,00,001 to 5,00,000 5% of amount by which the taxable income exceeds 3,00,000/-* 500,000 10,300 10,400 100
Income from 5,00,001 to 10,00,000 10,000 plus 20 % of the income over 5,00,000 1,000,000 113,300 114,400 1,100
Income from 10,00,001 to 50,00,000 1,10,000 plus 30% of the income above 10,00,000 1,500,000 267,800 270,400 2,600
Income from 50,00,001 to 1,00,00,000 1,10,000 plus 30% of the income above 10,00,000 6,000,000 1,824,130 1,841,840 17,710
Income from 1,00,00,001 and above 1,10,000 plus 30% of the income above 10,00,000 11,000,000 3,683,795 3,719,560 35,765
For resident individuals who at any time during the Financial Year is 80 years or more
Taxable Income Range Tax Rates Taxable Income Tax amount as per Current Structure (including 2% of Education Cess and 1% of Secondary and Higher Education Cess on Income-tax and Surcharge*) Tax amount as per Proposed Structure (including 4% of Health and Education Cess on Income- tax and Surcharge*) Net tax impact (Increase/(Decrease)) = (B)-(A)
Income from upto 5,00,000 No Tax 500,000 0 0 0
Income from 5,00,000 to 10,00,000 20% of the income over 5,00,000 1,000,000 103,000 104,000 1,000
Income from 10,00,001 to 50,00,000 1,00,000 plus 30% of the income above 10,00,000 1,500,000 257,500 260,000 2,500
Income from 50,00,001 to 1,00,00,000 1,00,000 plus 30% of the income above 10,00,000 6,000,000 1,812,800 1,830,400 17,600
Income from 1,00,00,001 and above 1,00,000 plus 30% of the income above 10,00,000 11,000,000 3,671,950 3,707,600 35,650
Note : Surcharge of 15 percent is applicable on income tax where taxable income exceeds INR 1,00,00,000 and 10 percent on income tax where taxable income exceeds INR 50,00,000, subject to marginal relief.
* Rebate u/s 87A – upto amount of tax or 2,500 whichever is less. (applicable only in case of resident individuals having a taxable income of upto 3,50,000). Marginal relief (if any) is not factored.

(Table source: EY)

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According to tax experts, FM Arun Jaitley in his Union Budget 2018 speech, didn’t make any changes in the present tax slabs or the tax rate. However, he came up with the proposal of replacing the education cess and the secondary education cess of 3% with a health and education cess of 4%. “This move has been done in order to cover the costs of government-sponsored programmes in the health and education sector along with the cost of primary education and the secondary and higher education sector. This hike in the cess on the income tax from the current 3% to 4% is applicable on all categories of taxpayers, be it an individual, company or any other assessee,” said CA Abhishek Soni, Founder, tax2win.in.

Income tax Calculator: Calculate impact of Arun Jaitley’s Budget 2018 on your tax liability

The effect of this change has been summarized in the below table:

Tax slab

Earlier Cess

Current Cess

Increase in Liability

If income is more than Rs 10 lakh (Say, Rs 20 lakh)

12375

16500

4125

If income is more than Rs 5 lakhs but limited to Rs 10 lakh (Say, Rs 10 lakh)

3375

4500

1125

If income is more than Rs 2.5 lakh, but limited to Rs 5 lakh (Say, Rs 5 lakh)

375

500

125

This additional 1% amount of cess will help the government raise Rs 11,000 crore and go towards Bharat Ayushman Programme under which Jaitley announced two major initiatives, including a National Health Protection Scheme (NHPS) providing health insurance worth Rs 5 lakh to 10 crore to the poor families.

Also read: From Blackboard to Digital board: Here’s Budget 2018 roadmap for changing the face of education sector

“NHPS is expected to benefit crores of people across the whole India. Further, the FM in his union budget 2018 speech called it the largest government-funded health insurance scheme which would be implemented anywhere in the world. Presently, the Modi government provides Rs 30,000 as health insurance for poor families under Rashtriya Swasthya Bima Yojana (RSBY) which is inadequate to cover the medical cost,” said Soni.

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