Overhaul of Rule 35 under HSNS Cess Rules, 2026: What Assessees Should Know
The Central Government has notified significant procedural changes in the manner in which cess collected under the Health Security se National Security Cess Act, 2025 is to be transferred, accounted for, and allocated. These changes have been introduced through Notification No. 03/2026 – HSNS Cess dated 20 May 2026 by amending Rule 35 of the Health Security se National Security Cess Rules, 2026.
While the core principles remain intact — namely that the cess, including interest and penalties, must first flow into the Consolidated Fund of India and thereafter be appropriated to a dedicated fund for specified purposes — the amendment rationalises the transfer mechanism, reallocates decision-making responsibilities, and simplifies the accounting framework.
This article provides a structured overview of:
- The legal background of the Health Security se National Security Cess
- The precise changes made to
Rule 35 - How the roles of various departments within the Ministry of Finance have been realigned
- Practical implications of these modifications for fund utilisation and governance
Legal and Regulatory Background
Statutory Framework
The levy and utilisation of the Health Security se National Security Cess are governed primarily by:
- Health Security se National Security Cess Act, 2025 (35 of 2025)
- Health Security se National Security Cess Rules, 2026 framed under
section 35of the Act
Rule 35 of the Rules deals specifically with “Utilisation of cess”, laying down:
- The route of crediting cess to the Consolidated Fund of India
- The subsequent appropriation to a dedicated fund
- The nature of activities that may be financed from such fund
- The institutional responsibilities for allocation, accounting, and audit
The amendments introduced by Notification No. 03/2026 – HSNS Cess are described as the Health Security se National Security Cess (Second Amendment) Rules, 2026 and take effect from the date of publication in the Official Gazette.
Core Features of Rule 35 (Pre-Amendment Position)
Before the second amendment, Rule 35 broadly provided for the following:
Initial credit to Consolidated Fund of India:
- All amounts collected as cess, including associated interest and penalties, were to be first credited to the Consolidated Fund of India.
Transfer to a dedicated fund:
- After Parliamentary appropriation, the credited amounts were required to be transferred to a fund known as the Health Security se National Security Cess Fund.
Quarterly transfer mandate:
Sub-rule (3)stipulated that the Department of Revenue, Ministry of Finance, was required to execute such transfer to the fund on a quarterly basis.
Permissible utilisation:
Sub-rule (4)clarified that the cess fund could be drawn upon to support activities, schemes, and programmes related to public health and national security of India.
Allocation responsibilities:
- Under
sub-rule (5), the Budget Division, Department of Economic Affairs, in consultation with the Department of Expenditure, Ministry of Finance, was tasked with:- Identifying eligible activities, schemes, and programmes, and
- Determining the inter-se allocation of the cess (including interest and penalty) among such purposes.
- Under
Accounting framework:
Sub-rule (6)originally vested the formulation of accounting procedures with the Office of the Principal Chief Controller of Accounts, Central Board of Indirect Taxes and Customs, requiring such procedure to be approved by the Comptroller and Accountant General of India.- This procedure governed transfer to the fund, debits from the fund, and ledger maintenance.
Audit safeguard:
Sub-rule (7)subjected the accounts of the fund, as maintained by the Central Government, to audit by the Comptroller and Auditor General of India.
The second amendment reconfigures three critical components: the transfer frequency and responsibility, the institutional authority for allocation decision-making, and the accounting authority and process.