Context:
Recently, the Chairman of the 16th Finance Commission highlighted concerns related to cess and surcharge.
Cesses and Surcharges:
- Cess and surcharges are levied by the Central government for the purposes of the Union under Article 271 of the Constitution of India.
Key Differences:
| Aspect | Cess | Surcharge |
| Purpose | A tax levied for a specific purpose. For example, the Education Cess is used to fund educational programs. | An additional charge or tax on the existing tax, generally levied to raise additional revenue. |
| Usage | The revenue collected from a cess is earmarked for a specific purpose and cannot be used for any other purpose. | The revenue collected from a surcharge can be used for any purpose. |
| Applicability | Cess is levied on all taxpayers. Even if those who are in the lowest tax slab will have to pay the cess. | It is applicable only to those taxpayers who come in the high-income band. A surcharge is only levied if the total income of an individual crosses ₹ 50 lakhs and for companies, surcharge is applicable only on income greater than ₹ 1 crore |
| Rate | Rate is fixed | Rate varies as per the brackets in which the people fall (Example of Progressive Tax) |
| Calculation Basis | Calculated on the total tax amount plus the applicable surcharge. | Calculated on the total tax amount only |
| Examples | Education Cess, Swachh Bharat Cess, Krishi Kalyan Cess. | Surcharge on Income Tax, Surcharge on Corporate Tax. |
Similarities between Surcharge and Cess:
- Only the Union Government is allowed to levy both cess and surcharge.
- State governments or local bodies do not have the power to levy either surcharge or cess.
- The proceeds collected from both cess and surcharge will be deposited in the Consolidated Fund of India.
- Proceeds of both cess and surcharge need not be shared with the states. It is not a part of the divisible pool of taxes.
Source: India Today
Previous Year Question
What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?
1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
3. It will enormously increase the growth and size of the economy of India and will enable it to overtake China in the near future.
[UPSC Civil Services Exam – 2017 Prelims]
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (a)