Cess & Surcharge
What are they?
- The Union government is empowered to raise revenue through a gamut of levies, including taxes (both direct and indirect), surcharges, fees and cess.
- A cess is a tax that is levied by the government to raise funds for a specific purpose. Surcharge is an additional charge or tax. For example: A surcharge of 10% on a tax rate of 30% effectively raises the combined tax burden to 33%.
- The main difference between surcharge and cess is that surcharge can be spent like any other taxes, the cess should be spent only for a specific purpose for which it is created.
- The Union government does not have to share cesses and surcharges with the states as they are not part of the divisible pool of taxes that needs to be shared with states.
Why in News?
- As per a recent report of India Ratings (a securities rating agency), the share of cess and surcharge in the gross tax revenue (GTR) of the Centre has almost doubled to 19.9% in 2020-21 from 10.4% in 2011-12.
- Since the cess and surcharge collected by the Centre are not part of the tax devolution, the 15th Finance Commission recommended a higher grant-in-aid to the States to compensate for the low growth in tax devolution.
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