CESS stands for ‘Central Excise and Service Tax.’ It is a term used primarily in the context of taxation in India. Let’s break down the meaning and components of CESS:
- Central Excise: Central Excise is a tax levied on the production or manufacture of goods in India. It is governed by the Central Excise Act, 1944. Central Excise duties are imposed on the value of goods at the time of their removal from the place of manufacture. The tax is borne by the manufacturer or producer, but it is usually passed on to the consumer through the pricing of the goods.
- Service Tax: Service Tax is a tax imposed on specific services provided in India. It was introduced in 1994 under the Finance Act, 1994. Service Tax is levied on a wide range of services, including professional services, banking services, insurance services, telecommunications, advertising, consulting, and many others. Service providers are responsible for collecting and remitting the tax to the government.
- CESS: CESS refers to an additional tax or levy imposed over and above the basic taxes like Central Excise and Service Tax. It is usually introduced for a specific purpose or to fund a particular initiative. CESS can be either a percentage-based tax on the value of goods or services, or it can be a fixed amount per unit. The revenue generated from CESS is earmarked for specific purposes such as education, healthcare, infrastructure development, environmental protection, or any other government initiatives.
CESS can be imposed by both the central government and state governments in India. The rates and types of CESS can vary depending on the objective and the sector it is intended to support. CESS may also be imposed as an additional duty or surcharge on certain goods or services.
It’s important to note that the Goods and Services Tax (GST) regime was introduced in India in July 2017, replacing various indirect taxes including Central Excise and Service Tax. Under the GST system, CESS has been replaced by a new concept called ‘compensation cess,’ which is primarily used to compensate states for any revenue losses incurred due to the implementation of GST.
In summary, CESS refers to an additional tax or levy imposed over and above the basic taxes like Central Excise and Service Tax in India. It is introduced for specific purposes and can be imposed by both central and state governments. CESS can vary in rates and types depending on the objective and the sector it is intended to support.
What does cess mean?
Cess is a form of tax charged/levied over and above the base tax liability of a taxpayer. A cess is usually imposed additionally when the state or the central government looks to raise funds for specific purposes. Different from the usual taxes and duties like excise and personal income tax, a cess is imposed as an additional tax besides the existing tax (tax on tax).
Cess in India – A Brief Background
- Since 1944, at various points in time, 42 cesses have been levied.
- The above mentioned numbers were given in one of the reports which was submitted to the Fifteenth Finance Commission.
- As per this study, the first cess was levied on matches.
- After independence, the cesses levied were focused on development of particular industries. Couple of examples are salt cess and tea cess which were levied in 1953.
- Later on, the cesses levied were focused on welfare of the labourers. It resulted in levying of cine workers welfare cess in 1981, limestone and dolomite mines labour welfare cess levied from 1972, and the iron ore mines labour welfare cess in 1961.
Introduction of Goods and Services Tax (GST) – Removal of Many Cess in India
- Most of the cess in India was removed after the introduction of GST in 2017.
- The number of cess in India which was continued to be levied came down to just seven, as of August 2018.
Types of Cess in India
In the Finance Bill for 2020-21, Health Cess of 5% on imported medical devices was introduced by Finance Minister Nirmala Sitharaman. Post GST, the different types of cess which continued to be levied in India are listed below:
- GST Compensation Cess
- National Calamity Contingent Duty on Tobacco and Tobacco Products
- Building and Other Construction Workers Welfare Cess
- Road and Infrastructure Cess
- Health and Education Cess
- Cess on Crude Oil
- Cess on Exports
FAQs
What is Cess?
Cess is a type of tax imposed by the government to raise funds for a specific purpose. Unlike other taxes, cess is collected over and above the existing taxes and is used only for the particular purpose for which it is levied, such as education, healthcare, or infrastructure development.
How is Cess different from Tax?
The key differences between cess and tax are:
| Basis | Cess | Tax |
|---|---|---|
| Purpose | Levied for a specific purpose | Used for general government expenses |
| Duration | Temporary, until the goal is achieved | Continuous |
| Collection | Charged in addition to tax | Collected as a regular government revenue |
| Example | Education Cess, Swachh Bharat Cess | Income Tax, GST, Property Tax |
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