Centre releases Rs 1.39 trillion instalment of tax devolution to states

Posted 12 Jun 2024

2 min read

This cumulative amount comprises the regular monthly devolution along with an additional instalment to accelerate development and capital spending in states.

Interim Budget 2024-25 has a provision of Rs. 12,19,783 crore towards devolution of taxes to States.

Devolution of Taxes to States

Article 270 of the Constitution provides for distribution of net tax proceeds collected by the Union government (corporation tax, personal income tax, central GST, etc.) between Union and states.
- This devolution is based on the recommendation of the Finance Commission (FC) constituted every five years as per Article 280.
- This divisible pool does not include cess and surcharge levied by the Centre.

Basis of Devolution

Vertical Devolution: Share of states from divisible pool which presently stands at 41% based on the recommendations of the 15^th FC.
Horizontal Devolution: It refers to distribution among the states from the share allocated to states based on various criteria.
- As per 15^th FC, the assigned criteria with their weights are: Income Distance (45%), Area (15%), Population, 2011 (15%), Demographic performance (12.5), Forest and Ecology (10%), and Tax and fiscal efforts (2.5%).

Grants to States

Post Devolution Revenue Deficit Grant: It is provided under Article 275 of the Constitution as per FC recommendations.
Sector-Specific Grants: 15^th FC has recommended such grant to states for 8 sectors including health, education, agricultural reforms etc.
State-Specific Grants: 15^th FC recommended these in areas of social needs, administrative governance and infrastructure, water and sanitation, preservation of culture and historical monuments, high-cost physical infrastructure and tourism.