Cesses and surcharges continue to grow, estimated at Rs 6.3 lakh crore in FY27

The Centre’s use of cesses and surcharges to supplement its income remains a bone of contention with states, who also advocated against it with the Sixteenth Finance Commission.

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Recent government data shows that the amount collected by the Union as cesses and surcharges is estimated to rise by nearly a third in the last five years from 2021-22 to 2026-27.

In FY22, the Centre collected Rs 4.83 lakh crore as cesses and surcharges, which is seen to increase to Rs 5.81 lakh crore in FY26 and rise further to Rs 6.3 lakh crore in FY27. The data was shared by Minister of State for Finance Pankaj Chaudhary in Rajya Sabha on Tuesday in response to a question by CPI(M) MP John Brittas.

The contribution to central resources from cesses alone amounted to Rs 3.52 lakh crore in FY22 while that from surcharges was Rs 1.31 lakh crore. The amount from cesses collected dropped to Rs 2.45 lakh crore as per the Revised Estimates and is estimated at Rs 2.73 lakh crore in FY27, including Rs 14,000 crore from the new Health Security se National Security Cess.

Meanwhile, the revenue from surcharges is estimated at Rs 3.35 lakh crore this fiscal and is seen to rise to Rs 3.56 lakh crore next fiscal. A key contributor to the rise in revenue from surcharges is the special additional excise duty and is estimated to contribute Rs 1.65 lakh crore to the Exchequer this fiscal and Rs 1.69 lakh crore next fiscal. Surcharge on corporate tax and personal income tax has also seen a steady rise, the data showed.

Over the last 10 years, official data suggests that the Centre’s revenue from cesses and surcharges was about Rs 2 lakh crore in FY16.

In a post on social media platform X, Brittas noted that there has been a quiet shift in India’s tax structure and the revenue from cesses and surcharges has more than tripled within a decade. “Cesses & surcharges are not shared with States - effectively shrinking the divisible tax pool. The more they grow, the smaller the divisible pool becomes. That’s how fiscal federalism quietly shrinks,” he said.

The Centre has always defended its use of cess and surcharge to collect revenue, underlining that the funds are ultimately shared with states.

Responding to the discussion on the Budget in the Lok Sabha in February this year, Union Finance Minister Nirmala Sitharaman that the levy of cess and surcharges was in line with the Constitutional provisions and the money collected through them was used for schemes that benefitted the states.

The Sixteenth Finance Commission in its report had said that it came across two issues that require careful attention during its consultation with various stakeholders. One of these was that while successive FCs have recommended increasing the share of the States in the divisible pool, this has not led to an increase in the overall resources of the States due to offsetting actions by the Union Government consisting of increased cesses and surcharges and reduced grants and transfers.

The Commission in its report called for a grand bargain between the Centre and states to enable an efficient and broad‑based system of taxation. Under this bargain, the Centre would agree to fold a large part of the revenue from cesses and surcharges into regular taxes and States would agree to a smaller share in the resulting larger divisible pool, with no loss of revenues to either side. 

It noted that cesses and surcharges had cut the size of the divisible pool from 89.1% of gross tax revenue in 2014‑15 to a 74‑80% range during the first four years of the FC‑15 award period for which actuals are available.