Constitutional Provisions
- Articles 268 to 293 in Part XII of the Constitution deal with Centre State financial relations
- Allocation of Taxing Powers
- The Parliament has exclusive power to levy taxes on subjects enumerated in the Union List.
- The state legislature has exclusive power to levy taxes on subjects enumerated in the State List.
- There are no tax entries in the Concurrent List.
- Exception – 101st Amendment Act of 2016
- This has made an exception by making a special provision with respect to goods and services tax.
- This Amendment has conferred concurrent power upon Parliament and State Legislatures to make laws governing goods and services tax.
- Residuary power
- The residuary power of taxation is vested in the Parliament.
- Under. this provision, the Parliament has imposed gift tax, wealth tax and expenditure tax.
- Restrictions on Taxing Power of States
- A state legislature can impose taxes on professions, trades, callings and employments and no individual should owe.
- A state legislature is prohibited from imposing a tax on the supply of goods or services or both in the following situation
- A state legislature can impose taxes on professions, trades, callings and employments and no individual should owe.
- A state legislature is prohibited from imposing a tax on the supply of goods or services or both in the following situation
- Parliament is empowered to formulate the principles for determining when a supply of goods or services or both takes place outside the state, or in the course of import or export.
- A state legislature can impose tax on the consumption or sale of electricity but, no tax can be imposed on the consumption or sale of electricity which include
- Consume or sold by centre
- Consumed in the construction, maintenance or operation of any railway by the Centre or by the concerned railway company or sold to the Centre or the railway company for the same purpose.
- A state legislature can impose a tax in respect of any water or electricity stored, generated, consumed, distributed or sold by any authority established by Parliament for regulating or developing any inter-state river or river valley. But, such a law, to be effective, should be reserved for the president’s consideration and receive his assent.
- Distribution of Tax Revenues
- The 80th Amendment Act of 2000 and the 101st Amendment Act of 2016 have introduced major changes in the scheme of the distribution of tax revenues between the centre and the states.
- Article 268 – Taxes Levied by the Centre but Collected and Appropriated by the States
- It include stamp duties on bills of exchange, cheques, promissory notes, policies of insurance, transfer of shares and others.
- Article 269 – Taxes Levied and Collected by the Centre but Assigned to the States
- Article 269-A – Levy and Collection of Goods and Services Tax in Course of Inter-State Trade or Commerce.For example – GST
- Article 270 – Taxes Levied and Collected by the Centre but Distributed between the Centre and the States
- Article 271 – Surcharge on Certain Taxes and Duties for Purposes of the Centre
- Taxes Levied and Collected and Retained by the States
- Land revenue;
- Taxes on agricultural income;
- Duties in respect of succession to agricultural land;
- Estate duty in respect of agricultural land;
- Taxes on lands and buildings;
- Taxes on mineral rights;
- Duties of excise on alcoholic liquors for human consumption; opium, Indian hemp and other narcotic drugs and narcotics, but not including medicinal and toilet preparations containing alcohol or narcotics;
- Taxes on the consumption or sale or electricity;
- Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-state trade or commerce or sale in the course of international trade or commerce of such goods;
- Taxes on goods and passengers carried by road or inland waterways;
- Taxes on vehicles;
- Taxes on animals and boats;
- Tolls;
- Taxes on professions, trades, callings and employments;
- Capitation taxes;
- Taxes on entertainments and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council;
- Stamp duty on documents (except those specified in the Union List);
- Fees on the matters enumerated in the State List (except court fees).
- Article 268 – Taxes Levied by the Centre but Collected and Appropriated by the States
- The 80th Amendment Act of 2000 and the 101st Amendment Act of 2016 have introduced major changes in the scheme of the distribution of tax revenues between the centre and the states.
- Distribution of Non-tax Revenues
- Centre – posts and telegraphs; railways; banking; broadcasting coinage and currency; central public sector enterprises; escheat and lapse.
- State – irrigation; forests; fisheries; state public sector enterprises; escheat and lapse
- Grants-in-Aid to the States
- Statutory Grants
- Article 275 empowers the parliament to make grants to the states which are in need of financial assistance and not to every state
- These sums can be different for different states.
- These sums are charged on the Consolidated Fund of India every year
- These are given to the states based on the recommendation of the Finance Commission.
- Discretionary Grants
- Article 282 empowers both the centre and the states to make any grants for any public purpose, even if it is not within their legislative competence.
- The centre is under no obligation to give these grants and the matter lies within its discretion
- Other Grants
- Constitution provided for a temporary grant for specific purpose. Ex: grants for the states of Assam, Bihar, Odisha and West Bengal in lieu of export duties on jute and jute products.
- These grants were to be given for a period of 10 years from the commencement of the constitution based on the recommendation of the Finance Commission
- Statutory Grants
- Allocation of Taxing Powers