No reduction in States’ share in tax devolution, FM asserts in Lok Sabha, Pg13

Key Highlights:

• Finance Minister Nirmala Sitharaman affirmed that the Centre is transferring 41% of the divisible pool of taxes to States, as recommended by the 15th Finance Commission.
• The total resources to be transferred to States, including devolution and centrally sponsored schemes, is estimated at ₹25.44 lakh crore for 2026-27.
• This amount represents an increase of ₹2.7 lakh crore over 2025-26 and ₹3.78 lakh crore more than the actuals of 2024-25.
• The 16th Finance Commission analyzed the States’ share transferred by the Centre from 2018-19 to 2022-23 and found it matched the 15th Finance Commission's recommendations.

Detailed Insights:

• The 15th Finance Commission recommended that the Centre should transfer 41% of its divisible pool of taxes to the States from 2020 to 2026, which the Centre accepted.
• The divisible pool is determined by the Comptroller and Auditor-General (CAG), who audits the Centre’s finances and subtracts cesses and surcharges from gross tax receipts.
• The Centre is constitutionally authorized to collect cesses and surcharges, which are earmarked for specific purposes like health, education, and roads, benefiting the States.
• The Union Budget includes medium and long-term announcements, covering issues from 2026 to 2050, aligning with the new five-year cycle of the 16th Finance Commission.
• The government is focused on building infrastructure, including waterways, to reduce logistics costs and benefit hinterland States by enabling faster and cheaper movement of goods.

Key Concepts Involved:

• Divisible Pool: The portion of the Centre's tax revenue that is distributed among the states as per the recommendations of the Finance Commission.
• Cesses and Surcharges: Taxes levied by the Union government for specific purposes, which are outside the divisible pool and can be used for targeted programs.
• Finance Commission: A constitutional body that recommends principles governing the distribution of tax revenues between the Centre and the States.