States to get share of new health-security cess through schemes: Sitharaman

Finance Minister Nirmala Sitharaman said the proposed Health and National Security Cess is expected to act as a deterrent to pan masala consumption and will not be levied on essential commodities

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Union Finance Minister Nirmala Sitharaman on Thursday said the proceeds from the proposed Health and National Security Cess will be shared with states under specific health schemes.

 

"Part of the revenue from this cess will be shared with states through health awareness or other health-related schemes/activities," Sitharaman said in Lok Sabha during the debate on the Health Security se National Security Cess Bill, 2025.

 

The minister's statement comes after some opposition members voiced their concerns over the Bill. All India Trinamool Congress MP Sougata Roy opposed the Bill, calling the legislation “ambiguous” and objecting to any cess that would not be shared with states under the divisible pool.

 

"Firstly, I am opposed to any cess imposed by the Central Government since it is not fair to the States. Secondly, clubbing health security with national security is ambiguous since both are entirely different concepts," Roy said during a discussion on December 1. 

 

Roy had also opposed the Bill by saying it lacks information about the dangers of tobacco products. "Pan masala is harmful for health and is known for causing oral cancer. There is no restriction on pan masala. It does not specify that such warning should be printed on pan masala package," Roy had said.

 

The Bill seeks to impose a monthly cess on machines used to manufacture certain goods, mainly pan masala and any other products that may be notified later. This levy will be charged over and above the current GST and excise duties. The revenue collected will go to the Consolidated Fund of India before being allocated by Parliament for health and national security schemes.

 

How did the cess work until now?

So far, the Centre imposed a cess on such products since July 2017, which was shared with states to compensate them for revenue losses arising from the implementation of the goods and services tax (GST). However, the centre government stopped compensating states after the promised five-year period ended in 2022, though the compensation cess continued in order to repay the additional borrowing undertaken during Covid to meet the GST revenue shortfall.

 

Cess to deter pan masala consumption: Sitharaman

Further elaborating on the Bill, Sitharaman said the government expects the cess to act as a deterrent to pan masala consumption.

 

The finance minister said that pan masala will be taxed at the maximum 40 per cent rate under GST based on its consumption, and there will be no impact of this cess on GST revenues.

 

Sitharaman added that since excise duty cannot be levied on pan masala, the Centre has introduced a separate cess to ensure that production of pan masala is taxed, along with GST, which is levied on consumption.

 

She also clarified that the cess will not be levied on essential commodities.

 

(With inputs from agencies)