Score:
8/15
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Topper’s Copy
GS2
Indian Polity
15 marks
How are taxation powers divided between the Centre and the States in India? Discuss the major challenges to fiscal federalism and suggest measures to strengthen it.
Student’s Answer
Evaluation by SuperKalam
Demand of the Question
- How taxation powers are divided between the Centre and States
- What are the major challenges to fiscal federalism in India
- What measures are needed to strengthen fiscal federalism
What you wrote:
Article 268 to 293 (Centre-state financial relations) and Article 246 (Division of powers) deals with the taxation powers of centre and India.
India follows a "Asymmetric fiscal federalism" where centre have more powers while states have more responsibilities. and restrictions.
Article 268 to 293 (Centre-state financial relations) and Article 246 (Division of powers) deals with the taxation powers of centre and India.
India follows a "Asymmetric fiscal federalism" where centre have more powers while states have more responsibilities. and restrictions.
Suggestions to improve:
- You could explain vertical fiscal imbalance in one short sentence, directly linking States’ spending responsibilities with their revenue capacity.
- Use the constitutional opening to distinguish **taxation powers** from **tax-revenue sharing**, then move into the detailed classification.
What you wrote:
Taxation powers
(1) Article 246 contains "Union list" -> levied, collected and exclusively to centre (13 subjects)
"state list" -> levied, collected and appropriated exclusively by states (18 subjects).
Article 246A -> added GST which is levied, collected by centre but appropriated between Centre and states as decided by GST council.
(2) Article 268 deals with taxes levied, collected by Centre and appropriated to states.
eg Stamp duties on bills of exchange, cheques.
(3) Article 269 deals with taxes on Interstate trade levied & collected by the Centre but appropriated to states.
(4) Article 270 -> exclusively by centre
eg Cess and surcharges, Union list taxes.
(5) Centre can fix ceiling limits on taxation powers of state (Article 276)
(6) Residuary taxation power lies with centre
Taxation powers
(1) Article 246 contains "Union list" -> levied, collected and exclusively to centre (13 subjects)
"state list" -> levied, collected and appropriated exclusively by states (18 subjects).
Article 246A -> added GST which is levied, collected by centre but appropriated between Centre and states as decided by GST council.
(2) Article 268 deals with taxes levied, collected by Centre and appropriated to states.
eg Stamp duties on bills of exchange, cheques.
(3) Article 269 deals with taxes on Interstate trade levied & collected by the Centre but appropriated to states.
(4) Article 270 -> exclusively by centre
eg Cess and surcharges, Union list taxes.
(5) Centre can fix ceiling limits on taxation powers of state (Article 276)
(6) Residuary taxation power lies with centre
Suggestions to improve:
- Correct the collection arrangements: Central Goods and Services Tax is levied and collected by the Centre, State Goods and Services Tax by States, and Integrated Goods and Services Tax under Article 269A by the Centre before apportionment between the Union and States. For Article 268, clearly distinguish Union levy from State collection and appropriation, except in Union Territories.
- Present Article 270 as the basis of the divisible pool, separately noting the exclusion of cesses and surcharges. This will also give your later discussion of States’ revenue concerns a sound legal foundation.
- Add the **Finance Commission under Article 280** after the tax-sharing provisions. Explain that it recommends the Centre–State division of the divisible pool, distribution among States, and grants-in-aid under Article 275.
What you wrote:
Major challenges to fiscal federalism
(1) Cess and surcharges issue : state claim share in cess & surcharges
(2) "Net borrowing limit" on states (Article 293) by centre
eg Kerala case on NBL.
(3) Tied nature and design of centrally sponsored schemes -> limits state's fiscal use independence.
(4) Delay in GST compensation and destination based taxation -> discourages manufacturing-led states.
(5) Horizontal disparities among states on devolution. - perception of political nature eg Special packages to Andhrapradesh & Bihar.
Major challenges to fiscal federalism
(1) Cess and surcharges issue : state claim share in cess & surcharges
(2) "Net borrowing limit" on states (Article 293) by centre
eg Kerala case on NBL.
(3) Tied nature and design of centrally sponsored schemes -> limits state's fiscal use independence.
(4) Delay in GST compensation and destination based taxation -> discourages manufacturing-led states.
(5) Horizontal disparities among states on devolution. - perception of political nature eg Special packages to Andhrapradesh & Bihar.
Suggestions to improve:
- Add a short cause-and-effect link to each challenge, such as reduced shareable revenue, constrained investment or uncertain State budgets.
- Develop the borrowing example through **State of Kerala v. Union of India**, where the Supreme Court examined central borrowing ceilings and the inclusion of State public-sector undertakings’ off-budget borrowings under Article 293. Use it to explain the tension between fiscal discipline and State borrowing autonomy.
- Separate disagreements over inter-State distribution criteria from concerns about discretionary packages. Explain the underlying tension between supporting poorer States and recognising revenue effort.
What you wrote:
Measures to strengthen fiscal federalism
[FLOWCHART:
Central text inside oval node labeled "Measures"
Arrow 1 points to item "(1) Strengthen the Revenue generation of states -> to improve fiscal autonomy"
Arrow 2 points to item "(2) Revamp the design of centrally sponsored schemes -> untied with state specific need"
Arrow 3 points to item "(3) Punchi Commission recommends reduction in cess & surcharges -> more tax revenue for states"
Arrow 4 points to item "(4) strengthen GST council to promote 'cooperative federalism']
Measures to strengthen fiscal federalism
[FLOWCHART:
Central text inside oval node labeled "Measures"
Arrow 1 points to item "(1) Strengthen the Revenue generation of states -> to improve fiscal autonomy"
Arrow 2 points to item "(2) Revamp the design of centrally sponsored schemes -> untied with state specific need"
Arrow 3 points to item "(3) Punchi Commission recommends reduction in cess & surcharges -> more tax revenue for states"
Arrow 4 points to item "(4) strengthen GST council to promote 'cooperative federalism']
Suggestions to improve:
- Make the revenue-generation node actionable by mentioning better tax administration, improved compliance and reduced revenue leakage.
- Specify stronger consultation and timely dispute resolution within the **Goods and Services Tax Council**. For **centrally sponsored schemes**, suggest greater flexibility to adapt spending to State-specific needs rather than simply making all funding untied.
- Add transparent, consultative borrowing rules that balance State investment needs with debt sustainability. Keep this as a short additional node in the existing flowchart.
What you wrote:
Fiscal autonomy of states should be leveraged with more powers and strengthen institutional capacities to promote balance in fiscal federalism.
Fiscal autonomy of states should be leveraged with more powers and strengthen institutional capacities to promote balance in fiscal federalism.
Suggestions to improve:
- You could replace the broad call for “more powers” with a concise emphasis on predictable revenue sharing and meaningful spending flexibility.
- Close by balancing State autonomy, responsible borrowing and equitable development within cooperative federalism.
What works: Clear organisation, a useful reform flowchart and coverage of taxation, borrowing, spending autonomy and inter-State disparities.Revision priorities: Correct Articles 246A, 268 and 270, add the Finance Commission, and connect each major challenge with a clear consequence and an actionable reform.
Demand of the Question
- How taxation powers are divided between the Centre and States
- What are the major challenges to fiscal federalism in India
- What measures are needed to strengthen fiscal federalism
What you wrote:
Article 268 to 293 (Centre-state financial relations) and Article 246 (Division of powers) deals with the taxation powers of centre and India.
India follows a "Asymmetric fiscal federalism" where centre have more powers while states have more responsibilities. and restrictions.
Article 268 to 293 (Centre-state financial relations) and Article 246 (Division of powers) deals with the taxation powers of centre and India.
India follows a "Asymmetric fiscal federalism" where centre have more powers while states have more responsibilities. and restrictions.
Suggestions to improve:
- You could explain vertical fiscal imbalance in one short sentence, directly linking States’ spending responsibilities with their revenue capacity.
- Use the constitutional opening to distinguish **taxation powers** from **tax-revenue sharing**, then move into the detailed classification.
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