New Delhi: The 2% education cess levied on income and corporate tax is applicable from April 1, ''04. Unlike the proposed securities transaction tax, which will be levied only after the government notifies an effective date, the education cess is with retrospective effect — ie beginning April 1, ''04. The 2% cess is payable as additional surcharge under income tax.

This means the taxpayer has to factor in the 2% cess while, say, withholding tax at source or paying dividend distribution tax. "Technically speaking, companies will be well advised to take the same into consideration. Though practically speaking the taxpayer can pay the cess on dividend distribution tax after the Finance Bill is passed," says a tax expert.

With the 2% education cess, the tax rate for domestic companies works out to 36.6% and 41.8% for foreign companies.

Companies have paid the first instalment of advance tax in June. Corporates pay upto 15% of their expected tax liability for the current fiscal in the first instalment. Since the cess cannot be legally enforced till the passage of the Finance Bill, the proceeds will accrue later to the government.

The government has budgeted receipts of Rs 4,910 crore from the education cess on direct and indirect taxes. Of this Rs 1,590 crore will be realised from corporation tax, Rs 920 crore from income tax, Rs 750 crore from customs, Rs 1,500 crore from excise and Rs 150 crore from service tax.