What is Cess? – UPSC Prelims

  • A cess is an earmarked tax that is collected for a specific purpose and ought to be spent only for that.
  • It is collected above the base tax liability of a taxpayer.
  • It can be levied on both direct and indirect 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.
  • The government has levied 42 cesses at various points in time since 1944.
Difference between Surcharge and Cess:
  • Surcharge is an additional charge or tax levied on existing tax. The main surcharges are on personal income tax (on high income slabs and on super rich) and on corporate income tax.
  • Despite both are not shareable with state governments, surcharge can be kept with the Consolidated Fund of India (CFI) and spent like any other taxes, the cess should be kept as a separate fund after allocating to CFI and can be spent only for a specific purpose.
  • A surcharge is discussed under Article 270 and 271 of the Indian Constitution.
  • Unlike a cess, which is meant to raise revenue for a temporary need, surcharge is usually permanent in nature.

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