Health and Education Cess

What it means

Health and Education Cess is an additional levy of 4% charged on top of your income tax and surcharge. Every individual, firm or company that has a tax liability pays it. The money is meant to fund health and education programmes. It replaced the earlier 3% education cess from 2018-19.

How it works

Cess is the last step in your tax computation.

• First work out tax on your taxable income at slab rates or special rates.

• Subtract the Section 87A rebate, if eligible.

• Add surcharge, if your income is above ₹50 lakh.

• Then add cess at 4% of (tax plus surcharge).

• Cess also applies to tax on capital gains, and is included in TDS on salary.

• If your tax is nil after the 87A rebate, cess is also nil.

Example

Sanjay has a salary of ₹18,00,000 in tax year 2026-27 and opts for the new regime.

Gross salary: ₹18,00,000

Less standard deduction: ₹75,000

Taxable income: ₹17,25,000

Tax on slabs:

₹0 to ₹4,00,000: nil

₹4,00,000 to ₹8,00,000 at 5% = ₹20,000

₹8,00,000 to ₹12,00,000 at 10% = ₹40,000

₹12,00,000 to ₹16,00,000 at 15% = ₹60,000

₹16,00,000 to ₹17,25,000 at 20% = ₹25,000

Total tax = ₹1,45,000

No rebate (income above ₹12 lakh) and no surcharge (income below ₹50 lakh).

Cess at 4% = ₹1,45,000 x 4% = ₹5,800

Total tax payable = ₹1,50,800

Compare this with someone whose taxable income is ₹11,50,000: tax of ₹55,000 is fully covered by the 87A rebate, so cess is also nil.

Key points to remember

• Cess is not a deductible business expense; the law specifically disallows it.

• Always calculate cess on tax plus surcharge, not on taxable income.

• When estimating advance tax or TDS, include cess, or you will end up with a shortfall and interest.

• Cess rates are set by each year’s Finance Act; 4% has applied since 2018-19.