INTERVIEW QUESTIONS TAX EDUCATION CESS , SURCHARGE DETAILS

Question: How to Calculate Education Cess?

Answer: Let us take an example of Aneesh. He has an annual income of Rs. 8 lakhs out of which he invests Rs. 30,000 in life insurance and contributes Rs. 40,000 towards a PPF account. He also makes a contribution to the Sukanya Samriddhi Account to the tune of Rs. 20,000 and invests Rs. 30,000 in a pension scheme. This means that his total investments amount to Rs. 1 lakh in a year which brings his taxable income down to Rs. 7 lakhs.

Based on his investments, the tax that he will have to pay is Rs. 65,000. On this tax he will pay education cess of:

Primary Education Cess: Rs. 1,300 at a rate of 2% of the tax payable, i.e. Rs. 65,000.

Secondary and Higher Education Cess: Rs. 650 at a rate of 1% of the tax payable.

This means that the total education cess that will be payable will be Rs. 1,950 which means that the income tax due for Aneesh is Rs. 66,950.

However, it needs to be remembered that since the education cess is only payable on the tax due so if your income falls in the non-taxable bracket of the income tax slab, you won’t have to pay this cess.

Let us take an example of Aneesh. He has an annual income of Rs. 8 lakhs out of which he invests Rs. 30,000 in life insurance and contributes Rs. 40,000 towards a PPF account. He also makes a contribution to the Sukanya Samriddhi Account to the tune of Rs. 20,000 and invests Rs. 30,000 in a pension scheme. This means that his total investments amount to Rs. 1 lakh in a year which brings his taxable income down to Rs. 7 lakhs.

Based on his investments, the tax that he will have to pay is Rs. 65,000. On this tax he will pay education cess of:

Primary Education Cess: Rs. 1,300 at a rate of 2% of the tax payable, i.e. Rs. 65,000.

Secondary and Higher Education Cess: Rs. 650 at a rate of 1% of the tax payable.

This means that the total education cess that will be payable will be Rs. 1,950 which means that the income tax due for Aneesh is Rs. 66,950.

However, it needs to be remembered that since the education cess is only payable on the tax due so if your income falls in the non-taxable bracket of the income tax slab, you won’t have to pay this cess. Source: CoolInterview.com

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