What is Cess?

What is Cess?

A cess is a tax that is levied by the government to raise funds for a specific purpose. Collections from the Education Cess and the Secondary and Higher Education Cess, for instance, are supposed to be used for funding primary and higher and secondary education respectively. Likewise, money collected from the newly introduced Krishi Kalyan Cess is to be used for funding agri development initiatives.

A cess is also different from the usual taxes. All the taxes collected by the government usually go into the Consolidated Fund of India (CFI) which can be spent on any legitimate activity. But the collections from a cess are required to be kept outside of the CFI to be spent only on the specific purpose for which it was levied.

If there is an unspent amount, it is simply carried forward for use in the following year. While the Centre has to mandatorily share the revenue from other taxes with the States, it gets to retain the entire kitty with a cess.

Cesses are not supposed to be relied upon as a regular source of revenue. They are resorted to only for a particular purpose and are to be discontinued after the objective is met, though this often doesn’t happen in practise. 

Cesses can be computed in different ways. 

For example:

The Swachh Bharat Cess (0.5 per cent) and the Krishi Kalyan Cess (0.5 per cent) both apply on taxable services. They are simply added to the 14 per cent service tax rate, taking the final rate to 15 per cent. 

The Clean Environment Cess is applied at a flat rate of ₹400 on every tonne of coal.

The Education Cess on the other hand is computed as a tax on a tax.