Distribution of Tax Revenues: Constitutional Provisions
Article 268 to 281 in the constitution of India deal with the distribution of tax revenues. These articles have been amended from time to time, for example 88th amendment provided for service tax via article 268-A. Some articles have been amended as per recommendations of finance commission also. The current position is as follows:
Article 268: Taxes Levied by the Centre but Collected and Appropriated by the States
This includes stamp duties on bills of exchange, cheques, promissory notes, policies of insurance, transfer of shares; excise duties on medicinal and toilet preparations containing alcohol and narcotics. The proceeds of these duties levied within any state do not form a part of the Consolidated Fund of India, but are assigned to that state.
Article 268-A: Service Tax Levied by the Centre but Collected and Appropriated by the Centre and the States
Service tax is levied by the centre but makes part of divisible pool of proceeds. The principles of their collection and appropriation are formulated by the Parliament on the basis of recommendations of finance commission, but such recommendations are not binding upon the parliament.
Article 269: Taxes Levied and Collected by the Centre but Assigned to the States
This includes taxes on the sale or purchase of goods (other than newspapers) in the course of inter-state trade or commerce; taxes on the consignment of goods in the course of inter-state trade or commerce. The net proceeds of these taxes do not form a part of the Consolidated Fund of India. They are assigned to the concerned states in accordance with the principles laid down by the Parliament.
Article 270: Taxes Levied and Collected by the Centre but Distributed between the Centre and the States
This includes all taxes and duties referred to in the Union List except the following:
- Duties and taxes referred to in Articles 268, 268-A and 269 (mentioned above);
- Surcharge on taxes and duties referred to in Article 271 (mentioned below); and
- Any cess levied for specific purposes.
The manner of distribution of the net proceeds of these taxes and duties is prescribed by the President on the recommendation of the Finance Commission.
Article 271: Surcharges
Parliament can at any time levy the surcharges on taxes and duties referred to in Articles 269 and 270. This includes cesses of different kinds such as Swachh Bharat Cess, Krishi Kalyan Cess etc. The proceeds of such surcharges go to the Centre exclusively and states have no share in them.
Taxes Levied and Collected and Retained by the States
These include land revenue; taxes on agricultural income, succession and estate duties in respect of agricultural land; taxes on lands and buildings, on mineral rights, on animals and boats, on road vehicles, on luxuries, on entertainments, and on gambling; excise duties on alcoholic liquors for human consumption and narcotics; taxes on the entry of goods into a local area, on advertisements (except newspapers), on consumption or sale of electricity, and on goods and passengers carried by road or on inland waterways; taxes on professions, trades, callings and employments not exceeding Rs. 2,500 per annum; capitation taxes; tolls; stamp duty on documents (except those specified in the Union List); sales tax (other than newspaper); and fees on the matters enumerated in the State List (except court fees).