Public Accounts Committee flags failure to transfer ₹9,222 crore in cess collections to designated reserve funds
The Public Accounts Committee (PAC) of Parliament examined an audit finding that about ₹9,222 crore collected through cess, levies, and surcharges during a financial year was not transferred to the designated reserve funds for which it was collected.
The examination was based on a paragraph of a Comptroller and Auditor General (CAG) report on the short transfer of levies and cess collections to designated funds.
Officials of the Finance Ministry and the Health Ministry were questioned on the shortfall, which affected funds including the Prarambhik Shiksha Kosh (primary education fund) and the Pradhan Mantri Swasthya Suraksha Nidhi (health infrastructure fund).
The committee's position was that cess proceeds, being collected for a specific earmarked purpose, must be credited to their designated reserve fund and not left in the Consolidated Fund of India where they could effectively finance general government expenditure, including the fiscal deficit.
Consolidated Fund of India, Public Account, and Reserve Funds (Article 266)
Article 266 of the Constitution establishes the Consolidated Fund of India, into which all revenues received by the Union Government, all loans raised, and repayments of loans are credited, and from which all government expenditure (except that charged on the Contingency Fund or Public Account) must be appropriated only with Parliament's authorisation. Article 266(2) separately establishes the Public Account of India, which holds money received by the government in a fiduciary or trust capacity, including specific-purpose reserve funds.
Key Details
- A cess or surcharge collected for a specific purpose (such as education or health infrastructure) is meant to be transferred out of the Consolidated Fund into a dedicated non-lapsable reserve fund held in the Public Account, from which it can be spent only for that stated purpose.
- If the amount is not transferred and instead retained in the Consolidated Fund, it becomes fungible with general revenue and can be used to fund any expenditure, including reducing the reported fiscal deficit, defeating the earmarking rationale behind the cess.
- The Contingency Fund of India (Article 267) is a separate emergency reserve at the President's disposal for unforeseen expenditure pending Parliamentary approval, distinct from both the Consolidated Fund and the Public Account.
The audit finding is precisely this failure — cess proceeds collected for education and health were not moved out of the Consolidated Fund into their designated Public Account reserve funds, so the committee is scrutinising whether the money was effectively used to plug general budgetary gaps instead of its intended purpose.
Cess as a Tax Instrument — Health and Education Cess
A cess is a tax on tax, levied for a specific purpose and, unlike general taxes, is meant to be spent only on that purpose rather than being shared with states or used for general government spending (cesses are outside the divisible pool of taxes shared with states under Finance Commission awards). The Health and Education Cess, currently levied at 4% on the income tax payable, is levied under Section 136-B of the Finance Act, 2007 (as amended), replacing the earlier 3% Education Cess and Secondary and Higher Education Cess structure from 2018 onward.
Key Details
- Proceeds of the Health and Education Cess are meant to be split between the Prarambhik Shiksha Kosh (funding school education programmes, largely Samagra Shiksha) and the Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN), a non-lapsable reserve fund created by a Union Cabinet decision to finance flagship health schemes such as Ayushman Bharat-PMJAY, Health and Wellness Centres, and the National Health Mission.
- Because cesses sit outside the divisible pool, states do not receive a share of cess revenue the way they do for basic income tax or GST, making full and timely transfer to the designated fund the only route by which the earmarked purpose is actually served.
- Repeated CAG findings over the years have flagged shortfalls in the transfer of cess proceeds (across education, health, road, and other cesses) to their respective reserve funds, a recurring centre-state fiscal federalism and transparency concern.
The ₹9,222 crore shortfall directly concerns the Health and Education Cess proceeds meant for the Prarambhik Shiksha Kosh and the PMSSN, both non-lapsable reserve funds that exist specifically so that cess money reaches its earmarked sector rather than being absorbed into general revenue.
Public Accounts Committee — Composition and Function
The Public Accounts Committee is one of Parliament's three financial committees (along with the Estimates Committee and the Committee on Public Undertakings) and is constituted annually under Rule 308 of the Rules of Procedure and Conduct of Business in the Lok Sabha, framed under the general rule-making power given to each House by Article 118 of the Constitution.
Key Details
- Composition: up to 22 members, of whom 15 are from the Lok Sabha and up to 7 from the Rajya Sabha, elected annually by the principle of proportional representation through a single transferable vote; a Union Minister cannot be a member.
- By convention, the Chairperson of the PAC is from the principal Opposition party.
- The PAC's core function is to examine the Appropriation Accounts and Finance Accounts of the Union government, using the CAG's audit reports as its primary working material, and to report whether money granted by Parliament was spent for the purposes for which it was sanctioned.
- The PAC's findings are recommendatory; it cannot direct the executive, but its reports are tabled in Parliament and typically require an Action Taken Report from the concerned ministries.
The PAC's questioning of Finance Ministry and Health Ministry officials over the cess shortfall is a textbook exercise of this core function — testing whether public money (in this case cess revenue) was applied to the purpose Parliament sanctioned it for.
- Shortfall examined: about ₹9,222 crore in cess, levy, and surcharge collections not transferred to designated reserve funds during the financial year under audit.
- Funds affected include the Prarambhik Shiksha Kosh and the Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN).
- Basis of examination: a paragraph on "short transfer of levies and cess collections to designated funds" in a CAG report tabled in Parliament.
- PAC composition: up to 22 members (15 Lok Sabha, 7 Rajya Sabha); constituted annually under Rule 308 of the Lok Sabha Rules of Procedure.
- Health and Education Cess rate: 4% on income tax payable, levied under Section 136-B, Finance Act, 2007 (as amended); replaced the earlier 3% Education Cess structure from the 2018 Budget onward.
- Constitutional basis for the underlying fund structure: Article 266 (Consolidated Fund and Public Account) and Article 267 (Contingency Fund).