Govt Sits on Education Cess Worth Rs 1.16 Lakh Crore

In the last 10 years, more than Rs 1.16 lakh crore collected by the central government in the form of education cess for a specific purpose such as to improve the quality of education have either not been fully transferred to dedicated funds or remain unutilised.

To improve the quality of primary education and government schooling system in the country, every citizen pays education cess, but government has not been transferring this cess to Prarmbhik Shiksha Kosh (PSK). In the last 10 years – between financial years 2009-10 and 2019-20 – Rs 1,16,898 lakh crore were not transferred to PSK, even as this amount has been collected in the form of education cess from the public. 

What is Education Cess

To bridge the gap between available allocations and estimated financial requirements, the education cess was first started in 2004, at 2%. Cess is levied on major central taxes, customs and Union excise duties. It was levied through the Finance Act, 2004, “to fulfill the commitment of the Government to provide & financial universal quality of education”.

In 2007, additional 1% cess was started for secondary and higher education. In 2019, in the Interim Budget, the government announced a 4% health and education cess on ‘Corporation Tax’ and ‘Taxes on Income’. The cess which was being levied on customs, Union excise duty and on service tax remained unchanged.

In this story, we focus mainly on the education cess. This cess is levied for elementary education only and its dedicated fund is Prarmbhik Shiksha Kosh (PSK), which is a non-lapsable fund—meaning if the amount collected in a year is not utilised, it can be carried forward. Purpose of this fund is to finance elementary education and the mid-day meal scheme. PSK is maintained by the Ministry of Human Resource and Development. 

Short Transfer of Cess

Based on the calculations using the budget documents form 2009-10, till the financial year 2019-20, a total of Rs 3.38 lakh crore has been collected under the education cess. However, records of PSK show receipt of only Rs 2.21 lakh crore, during this period. This shows that around 35% (Rs 1,16,897.81 crore) of the total collected cess is not transferred to PSK. Additionally, there is a huge gap between education cess collection and disbursement from PSK.

Dr. Nesar Ahmad, Director, Budget Analysis and Research Centre (BARC) Trust told NewsClick that the government should transfer all of the collected cess to the PSK, and then should subsequently transfer it to the state governments. The state governments must use this additional fund for improving the facilities in the government schools and for improving the quality of primary education.   

If we compare the Congress-led UPA-II and BJP-led NDA-I, we find that UPA-II had transferred 75.48% of the cess it collected to PSK, while this percentage for NDA-I was only 63.91%.

If we look at the status of the elementary education, primary schools’ infrastructure is well below the norm. Children are not getting quality education and the need of the hour is to increase the financial support and to strengthen the elementary education. Department- Related Parliamentary Standing Committee of the HRD Ministry has even said that the concerned departments have to ensure that the balance amount is utilised effectively.  

According to the Constitution of India, the responsibility of financing education lies jointly with the Centre and the state governments, but the government’s allocation is not increasing in tandem with the GDP. The governments’ financing is also highly dependent on public contribution. Union budget data from various years shows that the collection of the education cess has been increasing continuously. The PSK has become a crucial contributor to the education budget. More than 60% of the budget allocation for the Sarva Shiksha Abhiyan and the Mid-day Meal (MDM) schemes come from the PSK.

The cess helps the government to increase its fiscal capacity to fund important schemes to strengthen primary education. The opportunity cost of the money that has not been transferred to PSK is significantly high. It is completely unjustified that the collected cess is not transferred to the dedicated funds and remain unutilised for many years.

Read More: India’s Education Productivity Has Been Declining: ASER Report