Centre-State Relations: Financial Relations
Understanding financial relations between the Centre and the States is essential for grasping how public finances are managed in India and how resources are allocated for the welfare and development of the country. Articles 264 through 293 deal with the distribution of taxes between the Union (central government) and the states. It specifies that certain taxes, such as income tax, are collected by the Union government, while others, like sales tax, are collected by the state governments. In the concurrent list, no such mention of any kind of taxes is found.
- Article 265: Article 265 states that no tax can be levied or collected except by the authority of law. This means that taxes can only be imposed through laws with specific provisions passed by the Parliament or state legislatures.
- Article 266: This article relates to the Consolidated Funds of India and the states. It specifies that all revenues received by the government, along with loans raised by it, form part of the Consolidated Fund, from which all government expenses are met, except in cases of unforeseen circumstances. Any amount of money can only be taken out of the Consolidated Fund with the authorisation of the Parliament and in accordance with the law.
- Article 267: Article 267 pertains to the Contingency Fund of India, which is set aside for unforeseen or urgent expenditures. This fund is at the disposal of the President. Similarly, the Contingency Fund of a State is at the disposal of the Governor.
- Article 268: This article deals with stamp duties levied by the Union but collected and appropriated by the states. It outlines the process by which such duties are collected and distributed between the Union and states and clarifies that these do not form the part of the Consolidated Fund of India, despite being a subject of the Union list.
- Article 269: Article 269 covers taxes, taxes on sale or purchase of goods, levied and collected by the Union but assigned to the states. It specifies the manner in which these taxes are assigned to the states and how the proceeds are distributed among them. Furthermore, it specifies that these taxes are levied on inter-state sale or purchase of goods, except newspapers. The power to enact laws regarding inter-state trade and commerce lie only with the Parliament of India.
- Article 269A: This article, inserted through the 101st Amendment Act, 2016, is regarding the levy and collection of GST in cases of inter-state trade and commerce. The tax revenue collected is allocated between the state governments and the central government. Only the Parliament is authorised to enact legislation determining the distribution of taxes collected under this provision in accordance with the recommendations put forth by the GST Council.
- Article 270: This article pertains to the distribution of revenues between the Union and the states. It specifies the taxes and duties like excise duty on non-GST products, income tax, etc. that are to be assigned to the Union and those that are to be assigned to the states. The President, on the advice of the Finance Commission, prescribes the manner in which the taxes must be distributed.
- Article 271: Article 271 relates to surcharges on certain taxes and duties for the purpose of the Union. All the revenue collected from surcharges will be added to the Consolidated Fund. Parliament has the sole authority to impose surcharge.
- Article 273: Article 273 relates to grants in lieu of jute and jute products, given in the states of Orissa, Assam, West Bengal and Bihar. This was charged on the Consolidated Fund of India.
- Article 274: According to this article, bills or amendments related to imposition or alteration of taxes affecting the states, changes to the definition of “Agricultural Income” as defined in the Indian Income-Tax Act, modifications to the principles governing the distribution of funds to the states, or the imposition of surcharges on state taxes for Union purposes cannot be presented in either house of the Parliament without prior approval from the President.
- Article 275: Article 275 concerns grants-in-aid allocated by the Union government to states for approved developmental schemes, particularly emphasising the welfare of scheduled areas, scheduled tribes, with special attention to Assam. These grants are withdrawn from the Consolidated Fund.
- Article 276: This article relates to taxes on professions, trades, callings, and employments. It specifies that the total amount payable under any such tax shall not exceed two thousand and five hundred rupees per annum.
- Article 277: Article 277 pertains to savings and transitional provisions with respect to taxes. It specifies the manner in which taxes imposed by the Union and states prior to the commencement of the Constitution are to be saved and continued.
- Article 278: This article covers agreements with states in relation to certain matters. It specifies the manner in which agreements between the Union and states with respect to the levy, collection, and distribution of taxes are to be made.
- Article 279: This article provides calculation of net proceeds. The total earnings from taxes, excluding the collection costs, constitute the net proceeds of India. The article stipulates that the Comptroller and Auditor General of India will certify the net proceeds of a tax or duty.
- Article 279A: Article 279A pertains to the establishment of a GST Council. It specifies the composition of the Council and its functions with respect to the implementation of GST in India. The power to constitute this council lies with the President.
- Article 280: This article deals with the Finance Commission, which is constituted every five years to recommend the distribution of revenues between the Union and states. It specifies the composition, functions, and powers of the Finance Commission.
- Article 281: This article outlines the procedure for presenting the recommendations of the Finance Commission in Parliament. According to this article, the President of India is required to present all the recommendations made by the Finance Commission under the Constitution, along with an explanatory memorandum, before both Houses of Parliament. This ensures that the recommendations of the Finance Commission, which play a crucial role in determining the distribution of financial resources between the Union and the states, are duly considered and deliberated upon by the members of Parliament.
- Article 282: This article pertains to the power of the Union to make grants for certain purposes. It specifies the manner in which grants-in-aid can be made by the Union government for specific purposes to states. These grants are discretionary in nature.
- Article 283: Article 283 relates to custody, payment, and withdrawal from the Consolidated Fund of India. It specifies the manner in which moneys received by the government are to be deposited into the Consolidated Fund and how payments are to be made from it.
- Article 284: This article pertains to the Custody of the Consolidated Fund of India and Public Account of India. It specifies the manner in which the Consolidated Fund of India and the Public Account of India are to be maintained and operated.
- Article 285: Article 285 relates to exemption of property of the Union from state taxation. It specifies that properties belonging to the Union government are exempt from state taxation.
- Article 286: This article covers restrictions as to imposition of tax on the sale or purchase of goods.
- Article 287: Article 287 pertains to exemption from taxes on electricity by states in certain cases. It specifies that states are prohibited from imposing taxes on electricity in case it is consumed by the government or is used in construction, maintenance or operation of any railway or railway company operating that railway.
- Article 288: This article covers exemption from taxation by states in respect of water or electricity in certain cases. It specifies that states are prohibited from imposing taxes on water or electricity supplied to certain consumers.
- Article 289: Article 289 relates to exemption of property and income of a state from Union taxation. It specifies that properties and income belonging to states are exempt from Union taxation.
- Article 292: This article covers borrowing by the government of India. It specifies the manner in which the government of India can borrow money from within or outside India.
- Article 293: Article 293 pertains to borrowing by states. It specifies the manner in which states can borrow money from within, not from outside India.
Financial Emergencies: In case of a financial emergency declared by the President of India, the central government can take control of the financial affairs of the states. During a financial emergency, the President can issue directions to states on financial matters, and the Parliament can pass laws related to financial management in states.
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