Tax Revenue ,Cess and Surcharge

Tax Revenue refers to the income collected by the government through various taxes. It constitutes the major portion of the government’s total revenue receipts and is used to run the economy, fund development projects, implement welfare schemes, and build infrastructure. In simple terms, it is the money that the government collects from citizens, companies, and institutions in the form of taxes.

Tax revenue is a part of revenue receipts, which also include non-tax revenue (such as interest, dividends, fees, fines, etc.). However, tax revenue specifically refers only to income generated from taxes.

Main Types of Tax Revenue

Taxes are broadly classified into two categories:

1. Direct Taxes

These taxes are imposed directly on the income or wealth of individuals or institutions.
The tax burden falls on the same person or entity that pays the tax and cannot be shifted to others.

Examples:

• Income Tax – levied on individual income
• Corporate Tax – levied on company profits
• Securities Transaction Tax (STT)

2. Indirect Taxes

These taxes are imposed on the production, sale, or consumption of goods and services.
Although they are paid by producers or sellers, the tax burden is ultimately passed on to consumers.

Examples:

• Goods and Services Tax (GST)
• Customs Duty – imposed on imports
• Excise Duty

Other Classifications of Taxes

• Progressive Tax: The tax rate increases as income increases (e.g., Income Tax).
• Regressive Tax: The tax burden is relatively higher on lower-income groups, as the rate does not increase with income (many indirect taxes).

What are Cess and Surcharge ?

In India’s tax system, Cess and Surcharge are additional levies imposed on top of major taxes such as Income Tax and GST. They function like a “tax on tax”, but differ in purpose, usage, and applicability. Both are levied by the Central Government, and their proceeds are not shared with States (they lie outside the divisible pool under the Finance Commission).

Cess Meaning

A Cess is a tax levied for a specific purpose, and the revenue collected must be used only for that purpose.

Key Features

• Objective-specific
• Can be imposed on all taxpayers
• Generally temporary in nature
• Levied after tax and surcharge (if applicable)

Major Examples (Active till 2025)

• Health and Education Cess: 4% on income tax
  • Used for education and healthcare schemes
• Road and Infrastructure Cess (on petroleum products)
• Agriculture Infrastructure Cess
• Swachh Bharat Cess (now subsumed under GST)

Note: Many earlier cesses were merged into GST, but some sector-specific cesses continue.

Surcharge Meaning

A Surcharge is an additional charge on the basic tax, primarily imposed on high-income individuals and companies to ensure progressive taxation.

Key Features

• No specific earmarked purpose
• Used as general revenue
• Applied only when income exceeds specified thresholds
• Calculated on basic tax only

Surcharge Rates for Individuals

FY 2025–26 (AY 2026–27)

*Capital gains on listed shares (with STT) have a maximum surcharge cap of 15%.

For Companies

• 7% or 12%, depending on income levels

Example (Income Tax Calculation)

Assume a person has a taxable income of ₹60 lakh (New Regime):

• Basic income tax: approx. ₹12–13 lakh
• Surcharge: 10% (income exceeds ₹50 lakh)
• Health & Education Cess: 4% on (tax + surcharge)
• Effective tax burden increases significantly due to surcharge and cess

Key Differences: Cess vs Surcharge

India’s Tax Revenue Status (2025)

• Net Direct Tax Collection (FY 2024–25): approx. ₹21–22 lakh crore
• Gross Tax Revenue (Budget Estimate FY 2025–26): approx. ₹42–43 lakh crore
• Tax-to-GDP ratio: around 11–12%
• Major Sources:
  • Corporate Income Tax
  • Personal Income Tax
  • Goods and Services Tax (GST)

This rise reflects improved compliance, digitisation, and economic formalisation.