The Government of India depends on a diverse range of revenue streams to fund national development and social welfare. These receipts include gross tax revenue, comprising both direct and indirect taxes. Within this framework, cesses and surcharges have emerged as critical components of the national treasury.
A cess is an additional tax imposed to raise revenue for a specific objective.
It is often described as a promise made to taxpayers that their contribution will be used for a particular purpose. The legal basis for cess is found in Article 270 of the Constitution, under which revenue raised through cess remains with the Union government and is not available for distribution among states.
The Health and Education Cess is one such levy. Its primary objective is to support quality education and healthcare services, while improving national literacy and health outcomes. It is calculated as a percentage of income tax payable by individuals and corporations. Under the current fiscal regime, the Health and Education Cess is levied at 4% of income tax liability.
To ensure proper use of these funds, the proceeds are first credited to the Consolidated Fund of India and later transferred, with parliamentary approval, to a dedicated reserve fund in the Public Account. In the health sector, this fund is the Pradhan Mantri Swasthya Suraksha Nidhi, which provides funding for the National Health Mission.
According to audit reports of the Comptroller and Auditor General of India for 2018-19 to 2024-25, the Centre collected ₹3.87 trillion as Health and Education Cess. Of this, the health-specific component alone amounted to ₹966.27 billion over the same seven-year period.
The increase in cess collections underscores the significant contribution of small taxpayers to this fund, with the expectation that the money will be used for public welfare.
Fiscal Promise
The Comptroller and Auditor General of India tabled its report on the accounts of the Union government for 2024-25 in Parliament on April 2, 2026. The report highlighted an irony in public finance, funds raised from people for their welfare often remain unused for years.
The audit report reveals a systemic failure in transferring collected cess to the mandated reserve funds. Between 2018-19 and 2024-25, while ₹966.27 billion was collected as health cess, only ₹465.54 billion was transferred to the Public Account.
Nearly 52% of the total health cess collected did not reach the designated fund.
The failure to transfer these funds has serious implications for India’s health landscape.
By retaining them in the Consolidated Fund of India, the government restricts resources available for critical national programmes. Such reduced transfers could affect major initiatives such as the Pradhan Mantri Ayushman Bharat Health Infrastructure Mission, as well as medical training and workforce development programmes.
The Comptroller and Auditor General observed that while the Ministry of Health and Family Welfare had stated that the Ministry of Finance was the nodal authority for collection and allocation of health cess to the respective reserve funds, specific reasons for the short transfer of cess to the Pradhan Mantri Swasthya Suraksha Nidhi were not furnished. The issue remains unresolved.
The retention of earmarked funds within the Consolidated Fund of India raises concerns over fiscal transparency and accountability. In the past too, the Comptroller and Auditor General had observed that such proceeds were being partly used to finance the government’s revenue deficit.
To restore taxpayers’ trust, the Comptroller and Auditor General has recommended the timely transfer of cess collections to reserve funds, along with regular evidence-based reviews to assess the need for such cesses. Progress in implementing these suggestions has been limited so far.
The persistent short transfers and accounting failures identified by the Comptroller and Auditor General represent a significant dilution of public trust. Its reports have consistently highlighted these fiscal gaps, yet recommendations often remain unaddressed year after year.
To ensure meaningful accountability, the Comptroller and Auditor General must be empowered to play a role beyond auditing and reporting. It needs a stronger mechanism to ensure compliance. Otherwise, promises made to people regarding the proper use of public funds will remain unfulfilled.
India may soon become the fastest-growing major economy, but the true measure of any society lies in how it treats its most vulnerable members. Money collected through cess should reach the intended beneficiaries instead of becoming a tool for fiscal management.
.png)
