Centre-State Financial Relations

Centre-State Financial Relations

Notes

Part XII, Chapter I (Art. 268-293) deals with the distribution of revenues.

Tax distribution

• Art. 268: duties levied by the Union but collected and appropriated by the States (stamp duties, excise on medicinal and toilet preparations).
• Art. 269: taxes levied and collected by the Union but assigned to the States (e.g., taxes on the consignment of goods in inter-State trade). Art. 269A: IGST on inter-State supply is levied by the Centre and shared.
• Art. 270: taxes levied and collected by the Union and distributed between the Union and States on the Finance Commission's recommendation (income tax, CGST, IGST). The 80th Amendment (2000) made all Union taxes (except surcharges and cesses) shareable.
• Art. 271: surcharges are for the Union only.
• Art. 276: a State may tax professions, trades, callings, employments (maximum ₹2,500 per year).
• Art. 275 (statutory grants to needy States) and Art. 282 (discretionary grants).
• Art. 280: Finance Commission (Topic 79).

Borrowing and others

• Art. 292: Union borrowing; Art. 293: a State can borrow only within India, and needs the Union's consent if it owes loans to the Union.
• Art. 285 and 289: Union property is exempt from State taxes; State property and income exempt from Union taxation.
• Art. 267: Contingency Fund.

GST framework (101st Amendment, 2016)

• Art. 246A (concurrent power), 269A (inter-State supplies), 279A (GST Council), Art. 366(12A) (definition).

Issues: vertical fiscal imbalance (Centre raises more, States spend more), growing cesses and surcharges outside the divisible pool, centrally sponsored schemes, conditional borrowing limits, and horizontal equity. The 14th Finance Commission raised the States' share to 42% (2015-20) and the 15th set it at 41% (2021-26). The 16th Finance Commission covers 2026-31.

Key Points

• Art. 268-293; tax sharing under Art. 268, 269, 270.
• 80th Amendment: all Union taxes shared (except surcharge and cess).
• Art. 293: State borrowing only within India.
• GST: Art. 246A, 269A, 279A.
• Vertical imbalance and cesses are key issues.

MCQs

Q1. Taxes levied and collected by the Union and distributed between the Union and States are provided for in: (a) Art. 268 (b) Art. 269 (c) Art. 270 (d) Art. 271 Ans: (c).

Q2. Which Amendment made all taxes of the Union (except surcharges and cesses) shareable with the States? (a) 73rd (b) 80th (c) 91st (d) 101st Ans: (b). 2000.

Q3. The GST Council is provided for in: (a) Art. 246A (b) Art. 269A (c) Art. 279A (d) Art. 280 Ans: (c).