DR Ambedkar IAS Academy

What is Cess?

Cess meaning: Cess is a form of tax charged/levied over and above the base tax liability of a taxpayer. A cess is usually imposed additionally when the state or the central government looks to raise funds for specific purposes. For example, the government levies an education cess to generate additional revenue for funding primary, secondary, and higher education. Cess is not a permanent source of revenue for the government, and it is discontinued when the purpose levying it is fulfilled. It can be levied on both indirect and direct taxes. The government can impose cess for purposes such as disaster relief, generating funds for cleaning rivers, etc.

For example, after Kerala floods in the year 2018, the state government imposed a 1% calamity cess on GST and became the first state to do it. In other instances, the central government may levy an education cess, or a health cess, or a sanitation cess. All these levies are usually imposed as a percentage of the taxpayer’s basic tax liability. Under the GST (Goods and Services Tax) regime, certain sin goods and luxury items also attract a cess.

What is the difference between tax and cess? What is cess tax?

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.

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.

Types of cess in India

  • Education Cess: Education cess was introduced to finance and provide standard quality education to poor people.
  • Health and education cess: Proposed in Budget 2018 by Finance Minister Arun Jaitley to meet the education and health needs of rural and rural and Below Poverty Line (BPL) families.
  • Swachh Bharat Cess: Introduced in 2015, a 0.5% Swachh Bharat cess was imposed to fund national campaign for clearing the roads, streets and the infrastructure of India.
  • Krishi Kalyan Cess: This cess was aimed at developing the agricultural economy, and was collected at the rate of 0.5%.
  • Infrastructure Cess: Announced in Union Budget 2016, this cess was charged on the production of vehicles.

Who pays cess? What is meant by cess in GST?

In the case of the cess levied on direct taxes, it is added to the basic tax liability of the taxpayer and is paid as a part of the total tax paid by the taxpayers themselves. In the case of the cess levied on indirect taxes, such as service tax or sales tax, or GST in India’s case, it is paid by the producer of the goods and services. This usually adds to the cost of making goods and services, and eventually, the consumer might end up bearing the higher cost.

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