CAG Cautions Unutilized Cess Funds
The Government of India (GoI) depends on a diverse range of revenue streams to fund national development and social welfare. These receipts consist of Gross Tax Revenue, which includes both direct and indirect taxes. Within this framework, cesses and surcharges have emerged as critical components of the national treasury.
Source: CAG Report on Accounts of the Union Government for the financial year 2023-24 and 2024-25
A Cess is an additional tax imposed to raise revenue with a specific objective. It is often described as a “promise” made to the taxpayer that their contribution will be used for a particular purpose. The legal basis for cess is found in Article 270 of the Constitution. According to this Article, revenue through cess remains with the Union and is not available for distribution among the states.
Health and Education Cess (HEC): The Government of India collects various types of cesses, one of which is the Health and Education Cess (HEC). The primary objective of the HEC to provide quality education and healthcare services while increasing national literacy and health standards. It is calculated as a percentage of the income tax payable by individuals and corporations. In the current fiscal regime, the HEC is levied at a rate of 4% of the income tax liability.
To ensure proper use of these funds, the proceeds are first credited to the Consolidated Fund of India(CFI) 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 (PMSSN), which provides funding for the National Health Mission (NHM).
According to the Comptroller and Auditor General of India (CAG) audit-reports for 2018-19 to 2024-25, the Centre collected ₹3,86,508 crore as Health and Education Cess (HEC). Of this, the health-specific component alone amounted to ₹96,627 crore over the same seven-year period.
Source: CAG Report on Accounts of the Union Government for the financial year 2023-24 and 2024-25
The increase in cess collection underscores the significant contribution of small tax payers to this fund, with the expectation that that the money will be used for the benefit of people.
CAG uncovers the reality
The CAG tabled the Report on the Accounts of the Union Government for the financial year 2024–25 in Parliament on April 2, 2026. The report highlights an irony in public finance: funds raised from the people for their welfare often remain unutilized 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 ₹96,627 crore was collected as Health Cess, only ₹46,554 crore was transferred to the Public Accounts of India. So nearly 52 per cent of the total health cess collected remained un-transferred.
The failure to transfer these thousands of crores has profound negative implications for India’s health landscape. By withholding these funds in the CFI, the government directly restricts the resources available for critical national programs. Such reduced transfer of funds could affect major initiatives such as the Pradhan Mantri Ayushmaan Bharat Health Infrastructure Mission (PM-ABHIM), and many critical medical training and workforce development programs.
CAG observed that, while the Ministry of Health & Family Welfare stated that the Ministry of Finance is the nodal authority for collection and allocation of Health Cess to the respective Reserve Funds, the specific reasons for short transfer of cess to PMSSN have not been furnished, and the issue remains unresolved
The retention of earmarked funds within the CFI raises concerns over fiscal transparency and accountability. In the past too, the CAG had observed that the proceeds are being partly utilized to finance the revenue deficit of the Government.
To restore taxpayers’ trust, the CAG has recommended timely transfer of cess collections to reserve funds, along with regular evidence-based reviews to assess the need for such cesses. However, progress in implementing these suggestions has been limited so far.
The Way Forward: Stronger Audit Oversight
The persistent short transfers and accounting failures identified by the CAG represent a significant dilution of public trust. The CAG’s reports have consistently highlighted these fiscal gaps. However, their recommendations often remain unaddressed year after year. To ensure meaningful accountability, the CAG must be empowered to play a role beyond merely auditing and reporting. The CAG needs to be empowered to enforce compliance. Otherwise, the promises made to people regarding the proper use of public funds will remain unfulfilled.
Soon, we may become the fastest growing economy, but as Gandhi ji said, the true measure of any society can be found in how it treats its most vulnerable members. I hope the money collected through cess reaches the deserving beneficiaries instead of becoming a means for fiscal management.