surcharge and cess| Important Difference

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Tax is a source of revenue of any government. But the government in addition to tax also imposes Surcharge and Cess.

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What is Surcharge?

surcharge is a tax on any tax. The objective of imposing of levying surcharge is to put high tax burden on rich persons who can bear or have the capacity to pay high tax.

Surcharge is the additional tax payable over & above the normal tax. It is a conditional tax wherein if you meet the condition you become liable to pay such additional tax. Generally the condition is dependent on the income earned.

It is levied on all taxpayers. And the limit varies based on the category of the assessee.
The central government is not required to share the revenue from the surcharge with state governments. But it becomes a part of Consolidated Fund of India and goes directly to the fund. Thus it can be utilized for any purpose of the government.

Why does surcharge not form a part of income tax slab rates?

The intention of the law in levying surcharge is to tax the privileged ones who fall in the high income bracket. It is shifting the burden of tax from the poor class to the high end of the society.

In simple words, it is to take collect more from the people who are earning good and use it for the upliftment of the less privileged.
So, if it forms a part of the tax slab rates, all the people falling under different income bracket will have to suffer the burden of it and hence it will defeat the purpose.
Also, if it is added in a particular bracket of income level then a part of his income will get exempt from such additional charge.

What is a cess?

It is a form of tax levied or collected by the government for the development or welfare of a particular service or sector.

It is charged over and above direct and indirect taxes.

Cess collected for a particular purpose cannot be used for or diverted to other purposes.
It is not a permanent source of revenue for the government, and it is discontinued when the purpose levying it is fulfilled.
Examples: Education Cess, Swachh Bharat Cess, Krishi Kalyan Cess etc.

What is the difference between tax and cess?

Cess is different from taxes such as income tax, GST, and excise duty etc as it is charged over and above the existing taxes.
While all taxes go to the Consolidated Fund of India (CFI), cess may initially go to the CFI but has to be used for the purpose for which it was collected.
If the cess collected in a particular year goes unspent, it cannot be allocated for other purposes. The amount gets carried over to the next year and can only be used for the cause it was meant for.

Why is cess not a part of the income tax slab rates?

It is not made a part of the income tax slab rates because there may be certain sectors which need priority and more importance over the rest. By earmarking the fund for that particular purpose, it is ensured that the funds will not be diverged anywhere else. The particular sector or cause for which the funds has been raised by means of tax collection will be secured.

Difference between tax, surcharge and cess :

Tax	Surcharge	Cess
Goes directly to CFI (Consolidated fund of India)	Goes directly to CFI	Though Goes directly to CFI but its utilization is restricted
Can be used for any purpose	Can be used for any purpose	Can be used for a specific purpose only
Revenue is shared with the state government by the central government	No such sharing	No such sharing

In 2000, Article 270 was amended (80th amendment) and gave Constitutional sanction to the practice of keeping Union cess taxes and surcharges outside the divisible pool, a practice which was previously based only on the recommendations of Finance Commissions.

What is the divisible pool?

Divisible pool is that portion of gross tax revenue which is distributed between the Centre and the States. The divisible pool consists of all taxes, except surcharges and cess levied for specific purpose, net of collection charges.

Table: Important articles related with federal finance

Article	Area
Article 280	Creation of the Finance Commission
Article 270	Divisible pool
Article 271	(i) Surcharges and (ii) Taxes Levied and Collected and Retained by the States.
Article 268	Taxes levied by the centre but collected and appropriated by the states.
Article 269	Taxes levied and collected by the centre but assigned to the states.
Article 269 A	Taxes on Interstate trade and commerce.
Article 275	Grants in aid from the centre to the states as proposed by the Finance Commission.

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