Purpose

1. Cess: Levied for a specific purpose or fund, such as education, health infrastructure, or road development. Example: Education Cess, Health and Education Cess.

2. Surcharge: Levied to raise additional revenue from high-income individuals or entities, without linking it to any specific purpose. Example: Surcharge on Income Tax for individuals earning over ₹50 lakh or ₹1 crore.

Applicability

1. Cess: Can be applied to all taxpayers (individuals, companies, etc.) based on certain taxes like income tax, GST, etc.

2. Surcharge: Generally imposed on high-income individuals or companies who fall under higher tax brackets.

Tax Base

1. Cess: Calculated as a percentage on the basic tax amount (not including surcharge).

2. Surcharge: Calculated as a percentage on the total tax liability, excluding cess.

Usage of Revenue

1. Cess: Amount collected must be used only for the specified purpose. It goes into a dedicated fund (e.g., Prarambhik Shiksha Kosh for education).

2. Surcharge: Amount collected goes into the Consolidated Fund of India and can be used for any general purpose.

Sharing with States

1. Cess: Not shared with state governments. It is entirely retained by the Central Government.

2. Surcharge: Also not shared with states — this is a key reason for criticism by state governments.

Legal Backing

1. Cess: Levied under specific Acts of Parliament (e.g., Clean Energy Cess under Finance Act).

2. Surcharge: Imposed under the Income Tax Act, and its rates can be revised in the Union Budget.