What is Cess?

A cess is a government-imposed tax on tax, levied to raise funds for specific reasons. Generally, cess is expected to be levied when there is a need to meet specific expenditure for public welfare and discontinued once the government gets enough funds for that purpose.

Cess is not the same as normal tax which is collected by the Government such as income tax, Goods and Services Tax, Excise duty etc. Any tax collected from normal tax goes into Consolidated Fund of India (CFI) which can be allocated for any purpose. However, Cess is a different form of tax and does may initially get credited to the CFI but has to be ultimately utilized towards the purpose for which it was collected.

Health and Education Cess

Government introduced 4% Health and Education Cess to help take care the education and healthcare needs of below poverty line and rural families. Finance minister estimated an additional collection of Rs 11,000 crores with an increase of cess by 1%.

How does it impact Taxpayers?

Although cess is not like normal taxes, for taxpayers, it is as good as any other tax for common man since it increases their tax outflow. While an increase in cess on direct taxes raises the tax outflow, cess on indirect taxes may push up the cost of various products, thereby raising the cost of living. With the government’s proposal to put into effect health and education cess, individuals will have to pay 1% extra cess. For eg: Infrastructure cess increased cost of motor vehicles as companies passed on the additional cess to customers by hiking car, prices.

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