CESS

AboutCess:

What It Is?

• A cess is a specialized, targeted tax levied by the government over and above basic taxes to generate revenue for a specific, pre-determined purpose (e.g., education, road development, worker welfare). Once the earmarked objective is fulfilled, the cess is meant to be discontinued.

Constitutional Article & Devolution Rules:

• Constitutional Provision: Governed under Article 270 of the Constitution of India.
• Exclusion from Divisible Pool: Under Article 270, revenues collected through Union cesses and surcharges are excluded from the divisible pool of taxes shared between the Centre and the States. The central government retains 100% of its collected cess revenues without devolving them through Finance Commission recommendations.

Who Can Impose It?

• Central Government: Imposes nationwide cesses through Parliamentary legislation.
• State Governments: State legislatures hold constitutional powers under List II (State List) and List III (Concurrent List) to levy specific welfare or development cesses on state-level subjects like motor spirits, land, and local infrastructure.

Aim: To create a dedicated, non-lapsable pool of funds for a specific social or infrastructural priority without relying on general budget allocations.

Key Features of a Cess:

• Purpose-Bound Earmarking: Funds raised through a cess are ring-fenced and cannot be diverted or spent on general administrative overheads or unrelated government expenditures.
• Flexible Calculation Bases: Can be calculated either as a tax on tax or as a flat per-unit surcharge.
• Non-Lapsable Fund Allocation: Cess proceeds are typically deposited into dedicated statutory funds so unused funds carry forward to subsequent financial years.
• State-Level Welfare Surcharges: States frequently utilize fuel sales as a convenient administrative base for specific welfare cesses—such as Kerala’s ₹2/litre Social Security Cess or Himachal Pradesh’s 60p/litre Widow and Orphan Cess.