Where Did India’s Health Cess Go? The ₹71,000 Crore Question Nobody Is Asking

Every time an Indian taxpayer pays their income tax, they pay 4% extra. No debate, no opt-out. It’s called the Health and Education Cess (HEC), and the government collects it specifically — officially — to fund healthcare and education for Below Poverty Line families. In 2023-24 alone, that collection crossed ₹71,159 crore [CAG, 2024]. That’s roughly the GDP of a small country.

So why is India still spending less on public health than Bhutan?

That is not a rhetorical question. It has a paper trail.

What Is the Health and Education Cess and Why Should You Care?

The Health and Education Cess was introduced in 2018-19, replacing the older Secondary and Higher Education Cess. It levies 4% on your income tax liability, with the stated mandate of financing health and education needs of vulnerable populations [Paisabazaar, 2026].

For the average salaried Indian, this cess is invisible — it quietly sits in the tax slip, collected before you even see your take-home. The government’s promise was clear: 25% of HEC collections would go toward health schemes, routed through the Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN), a dedicated reserve fund [Ministry of Finance, 2020].

Between 2018-19 and 2023-24, cess collections grew from ₹41,310 crore to ₹71,159 crore — a 72% jump in six years [The Wire, 2026]. Meanwhile, India’s public health expenditure as a share of GDP has hovered between just 0.29% and 0.31% for the past three fiscal years [The Wire, 2026]. The government collected more. India spent less, proportionally.

That gap is not a rounding error. It is a policy choice.

What the Auditors Actually Found

India’s Comptroller and Auditor General (CAG) — the government’s own financial watchdog — has repeatedly flagged what is happening with this cess, and the findings are uncomfortable reading.

First: the PMSSN reserve fund, into which cess proceeds were supposed to flow, was approved by Cabinet only in March 2021 — nearly three years after the cess was introduced. During 2018-19, 2019-20, and 2020-21, Health Cess receipts were not transferred to the Public Accounts, and no dedicated accounting head existed within Public Accounts for those three years [The Wire/CAG, 2026].

Second: even after the fund was created, transfers remained short. As of March 31, 2024, the shortfall in transfers to the PMSSN stood at ₹43,426 crore — meaning tens of thousands of crores collected in the name of public health were sitting in the Consolidated Fund of India, not in the designated health reserve [The Wire, 2026].

Third: the 25% earmark itself has been inconsistently honored. In 2023-24, the amount transferred toward health schemes was lower than the committed 25% share of cess collections by ₹2,677 crore [PRS India, 2023].

To summarise: the cess was announced. The fund was delayed. The transfers were short. The shortfall grew. And Indian taxpayers kept paying.

Yes, check your Form 16 carefully — the 4% is right there.

The Part Nobody Talks About: States Are Being Left to Fend for Themselves

The cess story does not end with the Centre. There is a deeper structural problem.

Cess and surcharge collections are not divisible with States, which means that while States shoulder the primary responsibility for delivering healthcare services, a growing share of tax revenue is retained at the Union Government level [The Wire, 2026]. This fiscal centralisation has grim implications for cooperative federalism and for States’ ability to strengthen their own public health systems.

This matters enormously in practice. Health in India is primarily a State subject — your PHC, your district hospital, your ASHA worker, your NHM programme — these are all run by State governments. Yet the Centre’s share of transfers to States for Centrally Sponsored Health Schemes has fallen sharply. The Union’s share in health transfers to States has plummeted from 75.9% in 2014-15 to 43% in 2024-25 [Vajiramandravi, 2026], squeezing poorer States that lack the fiscal muscle to compensate.

The result? NHM spending declined by 5.5% annually in real terms during recent years, weakening public health system capacity [Vajiramandravi, 2026]. NHM is the backbone of maternal and child health programmes across rural India — JSY, JSSK, PMSMA, LaQshya — all of it flows through NHM.

Meanwhile, the Centre is enthusiastically building AIIMS. New AIIMS and upgraded government medical colleges constitute 20% of the health ministry’s budget [PRS, 2024]. Tertiary hospitals are visible. They photograph well. They cut ribbons with dignity. A functional sub-centre in Vidisha district does not trend on social media.

The National Health Policy 2017 had envisaged two-thirds of the health budget going toward primary care. This proportion remains at around 40%, with the National Health Mission witnessing a declining share within the overall health budget in the last five years [ORF, 2025].

And India? Per capita public health spending is significantly less than neighbours like Bhutan, which spends 2.5 times more, and Sri Lanka, which spends 3 times more — and far behind BRICS nations and countries like Thailand and Malaysia [Drishti IAS, 2026].

We are being outspent on health by Bhutan. Bhutan, a country with a population smaller than Pune.

What You Can Actually Do About It

For citizens and taxpayers: Demand transparency. Ask your MP — in writing, via grievance portals, at constituency events — why ₹43,000 crore of cess remains unaccounted for in PMSSN. The RTI Act exists precisely for this. File one. Share the CAG reports. Health financing accountability should not be a niche concern.

For health workers and civil society organisations: Build awareness around the cess diversion narrative at State and district level. Organisations working in NHM, nutrition, and primary health care advocacy should formally link budget cuts to service delivery failures at the ground — with data, with cases, and with names.

For policy makers and legislators: The ask is not radical. Transfer the full 25% cess component to PMSSN with mandatory quarterly disclosure. Ring-fence primary healthcare at a minimum 60% of the health budget. Restore the Centre-State transfer ratio for NHM to levels that allow States to actually deliver. The NHP 2017 target of 2.5% of GDP is not aspirational anymore — it is overdue. Financing such health expenditure expansion can be done by introducing healthcare cess on sin goods like tobacco, liquor, and sugar-rich foods, alongside indirect tax cuts on basic medical devices and medicines [IMPRI, 2025].

The Bottom Line

India is collecting a health cess from every taxpayer and not fully spending it on health. The CAG has said so. The PRS data has shown so. The PMSSN shortfall has been calculated — to the crore. And yet the conversation stays muted, buried in budget documents that most people will never read.

India’s health indicators have improved impressively over three decades — MMR down 86%, NMR down 70%, U5MR down 78% [MoHFW, 2025]. That progress is real and worth celebrating. But it is also fragile. It rests on an NHM that is being quietly underfunded, on State governments being handed shrinking transfers, and on a cess that collects in your name but does not fully arrive where it was promised.

The ₹71,000 crore question deserves a public answer. Ask it.

References

1. The Wire. Health Budget 2026-27: A Tale of Rising Allocations, Falling Accountability. February 2026. https://m.thewire.in/article/government/health-budget-2025-26-a-tale-of-rising-allocations-falling-accountability
2. PRS India. Demand for Grants 2024-25 Analysis: Health and Family Welfare. 2024. https://prsindia.org/budgets/parliament/demand-for-grants-2024-25-analysis-health-and-family-welfare
3. PRS India. Demand for Grants 2023-24 Analysis: Health and Family Welfare. 2023. https://prsindia.org/budgets/parliament/demand-for-grants-2023-24-analysis-health-and-family-welfare
4. ORF. Union Budget 2025: A Pulse Check on Healthcare. February 2025. https://www.orfonline.org/expert-speak/union-budget-2025-a-pulse-check-on-healthcare
5. IMPRI. From Pandemic to Progress: Where Does India’s Health Budget Stand in 2025? February 2025. https://www.impriindia.com/insights/indias-health-budget-stand/
6. Vajiramandravi. Has Health Spending by the Centre Increased in India? January 2026. https://vajiramandravi.com/current-affairs/health-spending-by-the-centre/
7. MoHFW. India’s MMR, IMR and Child Mortality Press Release. May 2025. https://www.mohfw.gov.in/en/press-info/8744
8. Drishti IAS. India’s Low Public Health Spending. January 2026. https://www.drishtiias.com/daily-updates/daily-news-analysis/indias-low-public-health-spending

Disclaimer: This article is for educational and public awareness purposes. For policy decisions, refer to official government and auditor reports.

Feature image: Indian rupee currency notes. Photo by Ayaneshu Bhardwaj on Unsplash (free license). Alt: health education cess India rupee public health budget accountability