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Finance Minister Nirmala Sitharaman asserted the Centre's constitutional authority to impose cesses and surcharges.
She highlighted that the Centre's transfers to states exceed the revenue collected from these specific levies.
The Opposition's concern was that cesses and surcharges are excluded from the divisible pool of taxes shared with states.
A **Cess** is a tax levied for a specific purpose, such as education or health, and its proceeds are earmarked solely for that designated objective. A **Surcharge** is an additional tax on an existing tax, for example, a surcharge on income tax. Both cesses and surcharges are generally not part of the **Divisible Pool**, which is the aggregate of central taxes that are shared with state governments, as recommended by the Finance Commission. This exclusion means the entire revenue from cesses and surcharges accrues to the Union government, leading to concerns from states regarding their share in central tax revenues.
Simple Analogy: Imagine a common family fund (divisible pool) where everyone contributes and shares. A cess is like a special collection for a specific item (e.g., a new TV) that only the person collecting it uses, not shared with the family fund. A surcharge is an extra amount added to a regular contribution, also kept by the collector for their own use.
Deals with taxes levied and collected by the Union and distributed between the Union and the States. It explicitly states that cesses and surcharges referred to in Article 271 are excluded from this divisible pool.
Empowers Parliament to levy surcharges on certain duties and taxes for the purposes of the Union, and the entire proceeds of such surcharges go exclusively to the Union government.
Establishes the Finance Commission, a constitutional body responsible for recommending the distribution of net proceeds of taxes between the Union and the States, and the principles governing grants-in-aid to states.
The Finance Commission determines the share of states in the divisible pool, from which cesses and surcharges are explicitly excluded, impacting its recommendations.
The debate over cesses and surcharges is a core aspect of fiscal federalism and often a point of contention in the financial relationship between the Union and State governments.
While GST subsumed many indirect taxes, certain cesses (like the GST Compensation Cess) still exist and have their own specific distribution mechanisms, adding another layer to fiscal federalism.
Indian Constitution—historical underpinnings, evolution, features, amendments, significant provisions and basic structure. Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein. Finance Commission.
General Awareness: Indian Polity, Indian Economy, Current Affairs.
General Awareness: Indian Economy, Current Affairs, Government Policies.
General Awareness: Indian Polity, Indian Economy.
General Awareness: Indian Polity, Current Affairs.
Right to Privacy is protected as an intrinsic part of Right to Life and Personal Liberty. Which of the following in the Constitution of India correctly and appropriately imply the above statement?
Answer: Article 21 and the freedoms guaranteed in Part III
Which one of the following statements is correct?
Answer: Rights are claims of the citizens against the State.
In the context of India, which one of the following is the correct relationship between Rights and Duties?
Answer: Rights are correlative with Duties.
High for UPSC (fiscal federalism, Centre-State relations), Medium for other exams (specific articles/terms).
A tax levied for a specific purpose, whose proceeds are earmarked for that objective.
An additional tax on an existing tax, accruing entirely to the Union government.
The portion of central taxes shared with states as per Finance Commission recommendations.
The division of financial powers and responsibilities between different levels of government.