Cabinet approves corpus fund for education cess proceedings

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The Centre on Wednesday approved the setting up of single corpus fund, in which all proceeds of secondary and higher education cess will be credited.


  • The HRD Ministry will be the nodal agency responsible for the administration and maintenance of the non-lapsable pool that will be known as “Madhyamik and Uchchtar Shiksha Kosh”(MUSK).
  • The corpus will have all the proceeds from the 1% collected by the government under the ‘secondary and higher education cess’
  • The fund may have a corpus between Rs3,000 crore and Rs 5,000 crore, as per human resource development (HRD) ministry estimates.
  • It will be a non-lapsable reserve fund, amount if not utilized , it would be carried forward.

Purpose of creating corpus fund:

  • These funds will be utilized for the government’s schemes in the education sector.
  • The fund will cater to schemes such as interest subsidy on education loans, education credit guarantee fund, scholarship schemes, girl’s education schemes and a scheme that funds higher education in states.
  • Money will be utilized when demand for these educational schemes goes up and all budgetary allocations available with the HRD ministry have been exhausted.
  • The Ministry proposed that for secondary and education, the income from the cess would be utilized in ongoing Rashtriya Madhyamik Shiksha Abhiyan Scheme and other approved programmes such as National Means-Cum-Merit Scholarship Scheme and National Scheme for Incentives to Girls for Secondary Education.
  • For higher education, the amount would be spent on ongoing schemes of Interest Subsidy and contribution for guarantee funds, Scholarship for College and University Students, Rashtriya Uchchtar Shiksha Abhiyaan Scholarship, and National Mission on teachers and training.


  • The fund will be akin to the Prarambhik shiksha Kosh (PSK) already in place since 2005 to fund elementary schemes like Sarva Sikha Abhiyan (education for all).
  • The draft cabinet note was circulated in 2010 by the HRD ministry, proposing to create a non-lapsable fund in the public account called MUSK which would be a receptacle for the proceeds for the secondary and higher education cess.

Meaning of Cess:

  • A cess imposed by the central government is a tax on tax, levied by the government for a specific purpose.
  • Generally, cess is expected to be levied till the time the government gets enough money for that purpose.
  • For example, cess for financing primary education- the education cess , which is to be spent only for financing primary education and not for any other purposes.
  • A cess is different from the usual taxes like excise duty and personal income tax as it is imposed as an additional tax besides the existing one.
  • The revenue from main taxes like personal income taxes are kept at Consolidated Fund of India and can be used for any purposes.
  • Cess also goes to consolidated fund of India but can be utilized only for specific purpose.
  • Cess is paid at a specified rate on Income tax, service tax, or as a flat amount while purposing a product.


Various cesses levied in India:


At present, the main cesses are:


  1. Education cess:


  • There are two cesses which are required to pay on income tax-Education cess and Secondary and Higher Education cess.
  • Education cess is levied with the purpose of promoting education in the country.
  • The rate of education cess applicable is 2% of total income tax.
  • Secondary and higher education cess is levied at a rate of 1% of the total tax.
  • This tax is levied with the purpose of providing secondary and higher education to the poor.
  • Education cess was first introduced in 2004 by than UPA government.
  • In 2006, a secondary and higher education cess of 1% on service tax was introduced.
  1. Cess levied on Services:
  • Swachh Bharat cess(SBC) is applicable on all taxable services at the rate of 0.5% of the value of service.
  • This cess is levied for financing and promoting of the Swachh Bharat Abhiyan or Clean India Mission.
  1. Krishi Kalyan Cess(KKC) :
  • Krishi Kalyan Cess(KKC) was announced by the Finance Minister Arun Jaitley in the Union Budget 2016.
  • This cess applies to taxable services at the rate of 0.5% of the value of service.
  • Funds collected from this cess are used to improve the agriculture sector.
  • These cesses are not applicable on services that are in the negative list or on services that are completely exempt from service tax.
  1. Infrastructure cess:
  • Infrastructure cess was introduced in Union Budget 2016.
  • The cess ranges from 1% to 4% depending on the car or vehicle being purchased.
  • It is levied at different rates on different segments of the automobiles.
  • This cess is imposed at a rate of 1% on petrol, LPG, CNG cars that are less than 4 metres in size and have engines with capacities up to 1200cc
  • It is levied at a rate of 2.5% on diesel cars that are less than 4 metres in size and have engine capacities less than 1,500 cc, and 4 per cent on vehicles, SUVs, and sedans that have higher engine capacities.
  • Three wheeler, electrically-operated vehicles, hybrid vehicles as well as hydrogen vehicles which are based on fuel cell technology are exempt from this cess.
  1. Clean environment cess:
  • The clean energy cess is levied on coal, lignite and peat has now be rename as Clean Environment Cess
  • It incidence double to Rs 400 per metric tonne
  • On the other hand, the government has confirmed that the Central Road Fund Act, 2000 will be amended to provide a formula for redistribution of cess funds for different purposes.
  • The Central Road Fund Act , 2000 imposes road cess , known as the excise and customs duty on petrol and high speed disesal.

Benefits of cess collection:

  • It enhances revenues therefore it is a better monetary space for plan implementation.
  • Many of these cesses are targeted for much needed social sector initiatives hence contributes towards a better Indian society.
  • Certain cesses like Coal tax cess and diesel and even Swacch bhart tax contributes towards the Indian sustainable goals
  • These targeted cessess help in achieving proper targets which could not have been achieved otherwise.

Demerits of cess collection:

  • Whole cess amount goes to Centre’s budget so it is against the cooperative federalism approach.
  • It imposes extra burden over the citizens in financial terms.
  • More chances of tax evasion hence may lead to black money generation in the economy.
  • The tax ultimately becomes regressive as it doesn’t go properly for the all round benefit of society.

Constitutional status:

  • The Constitution of India recognizes the government’s power to raise revenues by imposing cesses.
  • As per Article 270 of the constitution, cesses imposed by the Parliament for earmarked purposes need not be shared with the state governments.
  • The proceeds are retained exclusively with the Union government, which should be used for their stated purpose.

Problem areas:

  • There is some confusion over cess collection because most of the cesses have been merged with the goods and services tax (GST).
  • Cesses are either economically inefficient or are not used for their earmarked purpose
  • The Sarkaria commission emphasised way back in 1988 that the application of cesses must be for limited duration. In practice though, cesses are in the form of non-lapsable funds with no transparency on use of proceeds.
  • Cleanliness and sanitation are state subjects under the Indian Constitution. That is why; previous Union government’s involvement in the area was limited to introducing programmes and giving funds to the states to implement them.
  • The 14th Finance Commission had noted lack of transparency and incomplete reporting in accounts of cess funds.
  • Education cess failed to fulfilled its aim of universal enrollment
  • Lack of clarity within the institutional structure with increase suspicion.
  • Regressive in nature because cess charges are equal for all irrespective of considering the financial status.


  • The nature and implementation of each cess need to be normalized.
  • Use of the cess mechanism to raise taxes needs to be accompanied by a norm of keeping track of the amount in a fund that is exclusively used for the stated purpose, as in case of sugar cess, petrol and diesel cess.
  • Rather than asking for more and more tax government should try to improve its tax collection efficiency
  • The e-governance and Digital India initiatives should be used for better tax collection.
  • More targeted taxing rather than improper regressive taxes.


Cesses are meant for the betterment of society in the long as well as short run hence the same should be conveyed to the common citizens by the government  and that too not only on the paper but also through their activities.


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