Difference Between GST Compensation Cess And Income Tax Cess?
Updated: 28-01-2025 at 6:12 AM
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GST compensation cess and income tax cess are both forms of levies but are applied to different things. GST compensation is specific to certain goods, like luxury and demerit category goods. Income tax is an additional tax applied to specific government initiatives relating to health and education.
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Learn about the significant differences between GST Compensation Cess and Income Tax Cess in detail below.
What Is The GST Compensation Cess?
Let us understand the GST compensation cess first.
GST is a consumption-based tax, so only the states where the consumption of goods and services happens are eligible for the revenue on supplies. So, states focusing on manufacturing goods will face a decrease in revenue from indirect taxes. States like Maharashtra, Tamil Nadu, Gujarat, Haryana, and Karnataka face a decrease in revenue as they are manufacturing states.
The GST compensation cess is levied to compensate states for revenue losses caused by GST. This is so that manufacturing states will not face losses and will be compensated. But GST compensation is only levied on the supply of certain goods, such as luxury goods.
For luxury cars used for private use, 28% of GST is applicable, and GST compensation will be different for different cars based on different factors such as the car’s engine and the length of the car.
For Gasoline Vehicles:
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Cars using LPG, CNG, and petrol, below 1200 cc and with a length of 4 m, will have 28% GST and 1% GST cess.
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Cars using LPG, CNG, and petrol below 1200 cc and above the length of 4 m will have 28% GST and 15% GST cess.
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Cars using LPG, CNG, and petrol above 1200 cc, irrespective of their length, will have 28% GST and 22% GST cess.
For Diesel Vehicles:
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Cars that run on diesel and are below 1500 cc and 4 m in length will have 28% GST and 3% GST cess.
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Cars running on diesel below 1500 cc and above 4 m in length will have 28% GST and 20% GST cess.
So, if you are planning to buy a car, remember to consider these factors as well, as they may have a huge impact on the price.
Read More: Centre Introduces Biometric ID To Fight GST Fraud In India
What Goods Come Under CST Compensation Cess?
There are several goods that come under GST compensation. The goods that come under it are as follows:
- Aerated drinks
- Tobacco products
- Coal and lignite
- Luxury cars
GST Compensation Cess Rates
| Goods | GST Compensation Cess Rate |
|---|---|
| Luxury cars | 22% |
| Unmanufactured tobacco products (with lime tube) | 65% |
| Unmanufactured tobacco products (without lime tube) | 71% |
| Branded tobacco refuse | 61% |
| Cheroots and cigar | 21% or Rs. 4170 per thousand |
| Cigarettes containing tobacco apart from filter cigarettes, of length more than 65 mm and up to 75 mm | 5% + Rs.3668 per thousand |
| Branded ‘Hookah’ or ‘gudaku’ tobacco | 72% |
| Chewing tobacco (w/o lime tube) | 160% |
| Chewing tobacco (with lime tube) | 142% |
| Pan masala (Gutkha) containing tobacco | 204% |
| All goods, excluding pan masala containing tobacco ‘gutkha’, with brand name | 96% |
| All goods, excluding pan masala containing tobacco ‘gutkha’, not bearing a brand name | 89% |
| Coal, ovoids, briquettes, and similar solid fuels manufactured from lignite, coal, whether or not agglomerated, excluding jet, peat (including peat litter), whether or not agglomerated | Rs. 400 per tonne |
| Aerated drinks | 12% |
| Coal and lignite | Rs. 400 per ton |
| Some specific goods | Changes |
How Is GST Compensation Cess Is Calculated?
GST Compensation cess is calculated on the basis of the value of the taxable goods and services.
For example, Mr. Akhil purchased 2 tonnes of coal worth Rs. 14000, and as the value of the GST Compensation cess is Rs. 400 per tonne, Rs. 800 would be charged as per the standard rate.
What Is Income Tax Cess?
Income tax is a form of tax that is levied on specific government initiatives, such as education and health. It is imposed when the government is looking to raise funds for specific purposes. Education cash is only used for educational purposes, even if the amount is unspent. The unspent amount cannot be used for other purposes. The amount will be carried forward and used in the following year.
Every taxpayer is liable to pay a fixed cess rate of 4%. For the education cess, the government introduced 2% to meet the needs of the government. This will help in ensuring good quality education for the poor people in India.
However, the government then realised that they needed funds to provide access to secondary and higher education as well. So, in 2007, an additional 1% cess was added to fund secondary and higher education.
But then the government faced another issue that was brought to light by Finance Minister Arun Jaitley in 2008. The government had to start various programmes to meet the educational needs of below-the-line (BPL) and rural families. The cess was then increased by another 1%, making it a total of 4%.
Also Read: Clubbing Of Income Under Section 64 Of The Income Tax Act Rule & Guidelines
Who Is Eligible For Income Tax Cess?
Every taxpayer of the country, including Hindu Undivided Families (HUFs), companies, and firms is mandated to pay income tax cess as per the rules.
Why Were Both Cess Introduced?
The GST compensation cess was introduced to ensure financial stability in manufacturing states that face a loss due to the implementation of GST.
Whereas, income tax revenue helps fund important sectors like education and healthcare, which contribute to the social development of the nation.
Read More: Income Tax On Credit Card Transactions: Strategies To Avoid A Tax Notice
Conclusion
While both GST cess and income tax cess play an important role in ensuring balanced economic growth in the nation, there is a significant difference in the working of each. GST compensation cess is typically a consumption-based tax introduced in manufacturing states to ensure financial stability. On the other hand, the income tax cess is levied on government schemes, particularly in health and education.
Stay updated with Jaagruk Bharat to get the latest information on government healthcare schemes and more, and reach out to us via our community page if you have any questions.
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