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12 Dec 2024
Arvind Panagariya, Chairman, 16th Finance Commission termed the grievance of States regarding the Centre’s increasing reliance on cesses and surcharges as a “complicated issue.”
| Parameter | Tax (Article 265) | Cess (Article 270) | Surcharge (Article 270) |
| Definition | Mandatory financial charge imposed by the government to generate revenue for general public expenditure. | Specific levy imposed for a particular purpose or cause. | An additional charge on tax for people/entities earning higher income. |
| Objective | To fund the government’s general revenue and expenditure. | To raise funds for a specific purpose, such as education or health | To increase government revenue without affecting the general tax rates |
| Applicability | Imposed on individuals, businesses, and entities as per applicable rates. . | Imposed as an additional charge on taxes, such as GST, income tax, etc.
(Cess is levied on everyone) |
Levied on taxpayers in higher income brackets (e.g., above ₹50 lakh income in India) |
| Calculation Basis | Percentage of income, sales, or other taxable items. | Calculated on the total tax
amount plus the applicable surcharge. |
Calculated on the total tax amount only |
| Rates | As per Tax slabs | Rate is Fixed. | Rate varies as per the brackets in which the people fall. |
| Accounting | Forms part of the Consolidated Fund of India. | Added to the Consolidated Fund of India but can only be spent for specific purposes. | Forms part of the Consolidated Fund of India. |
| Tax sharing | 41% of the Centre’s divisible tax pool is yearly allocated to states | Center not obligated to share with the States | Center not obligated to share with the States |
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