What is a Cess | UPSC

What is a Cess | UPSC


Where are the funds collected through cess parked? That makes us study # What is a Cess | UPSC .

      WHY IN NEWS:

What has the Comptroller and Auditor General (CAG) of India found in its audit of government accounts?



For PRELIMS the definitions and the differences stand very important . This has been already asked in Prelims .

For MAINS go through the usage of cess . Let us dive in now !


The CAG of India, found that Center withheld in the Consolidated Fund of India (CFI) more than ₹1.1 lakh crore.

  • Out of this almost ₹2.75 lakh crore was collected through various cesses in 2018-19.


  • The CAG found this objectionable since cess collections are supposed to be transferred to specified Reserve Funds that Parliament has approved for each of these levies.
  • The nation’s highest auditor also found that over ₹1.24 lakh crore collected as Cess on Crude Oil over the last decade.

These funds had not been transferred to the designated Reserve Fund — the Oil Industry Development Board .

  • Similarly, the GST Compensation Cess was also “short-credited” to the relevant reserve fund to the extent of ₹47,272 crore in two years.


  • The Union government is empowered to raise revenue through a gamut of levies, including taxes (both direct and indirect), surcharges, fees and cess.
  • While direct taxes, including income tax, and indirect taxes such as GST are taxes where the revenue received by the government .
  • This revenue can be spent by the government for any public purpose in any manner.
  • It deems appropriate for the nation’s good, a cess is a earmarked tax that is collected for a specific purpose and ought to be spent only for that.

Cess is a form of tax charged/levied over and above the base tax liability of a taxpayer.

  • Cess is a tax. It is usually known as tax on tax.
  • Every cess is collected after Parliament has authorised its creation through an enabling legislation that specifies the purpose for which the funds are being raised.
  • Article 270 of the Constitution allows cess to be excluded from the purview of the divisible pool of taxes that the Union government must share with the States.


  • Cess is different from taxes such as income tax, GST, and excise duty etc as it is charged over and above the existing taxes.
  • While all taxes go to the Consolidated Fund of India (CFI), cess may initially go to the CFI but has to be used for the purpose for which it was collected.

If the cess collected in a particular year goes unspent, it cannot be allocated for other purposes.

  • The amount gets carried over to the next year and can only be used for the cause it was meant for.
  • The central government does not need to share the cess with the state government either partially or in full, unlike some other taxes.

What is a Cess | UPSC

  • The procedure for introducing cess is comparatively simpler than getting the provisions done for introducing taxes, which usually means a change in the law.
  • Cess is also easier to modify and abolish.


  • Post Independence, the cess taxes were linked initially to the development of a particular industry, including a salt cess and a tea cess in 1953.

Subsequently, the introduction of a cess was motivated by the aim of ensuring labour welfare.

  • Some cesses that exemplified this thrust were the iron ore mines labour welfare cess in 1961.
  • The limestone and dolomite mines labour welfare cess of 1972 and the cine workers welfare cess introduced in 1981.
  • The introduction of the GST in 2017 led to most cesses being done away with and as of August 2018, there were only seven cesses that continued to be levied.

What is a Cess | UPSC | IASbhai

In February, Finance Minister Nirmala Sitharaman introduced a new cess — a Health Cess of 5% on imported medical devices .

      IASbhai WINDUP: 

  • The CAG’s finding that the Centre retained ₹47,272 crore of GST compensation cess in the Consolidated Fund instead of crediting it to the GST compensation fund.
  • In the very first two years of the implementation of the new indirect tax regime has raised several key questions.

Cess does not need to be a part of the divisible pool of resources.

  • The increasing share of cess in the Union government’s tax receipts has a direct impact on fiscal devolution.
     SOURCES:THE HINDU | What is a Cess | UPSC



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