Allocation of taxing powers
- Parliament has the exclusive power to levy taxes on subjects enumerated in the Union list
- State legislature has the exclusive power to levy taxes on subjects enumerated in the state list
- Both union and state can levy taxes on matters enumerated in the concurrent list
- Residuary power of taxation is vested in the Parliament
Restriction placed by constitution on taxation power of the state
- A state legislature can impose taxes on profession, trades, callings and employments. But, the total amount payable by any person should not exceed Rs 2500 per annum
- A state can impose taxes on sale or purchase of goods (other than newspaper). But, this power of state to impose sales tax is subjected to four restrictions:
- No tax can be imposed n the sale or purchase of taking place outside the states
- No tax can be imposed on the sale or purchase taking place in the course of import or export
- No tax can be imposed on the sale or purchase taking place in the course of inter-state trade and commerce
- A tax imposed on the sale or purchase of goods declared by the Parliament to be of special importance in inter-state trade and commerce is subject to the restrictions and conditions specified by the Parliament
- State cannot impose tax on sale of electricity in the following circumstances- consumed by the centre or sold to the centre, consumed in the construction, maintenance or operation of any railway by the centre or sold to the railway company for the same purpose
- A state can impose tax on sale of water or electricity sold to an authority established by Parliament for regulating or developing Inter-state River. However, such imposition can be undertaken through a law which has received the assent of the President
Distribution of tax revenues
- Taxes are imposed by the centre but are collected and appropriated by the state (Article 268). The proceeds under this form part of the consolidated fund of the state. Ex: Stamps duty, excise duty
- Taxes are levied and collected by the centre but assigned to the states (article 269). Ex: Taxes on the sale or purchase of goods (other than newspapers) in the course of inter-state trade. The proceeds under this form part of the consolidated fund of the state.
- Taxes are levied and collected by the centre but distributed between the centre and the states (Article 270). This category includes all taxes except those mentioned above, surcharges and cess. The matter of distribution of these taxes is prescribed by the President based on the recommendation of the Finance Commission
- Parliament at any point can levy the surcharges on taxes and duties referred to in Article 269 and article 270. Such proceeds from surcharges go exclusively to the centre
- Taxes levied and collected and retained by the states: These are the taxes belonging to the states exclusively. They are enumerated in the state list. Ex: Taxes on agriculture income, excise duties on alcohol, taxes on professions, ceilings etc
Distribution of Non-tax revenues:
- The centre: The receipts from the following form the major sources of non-tax revenues of the centre: i) posts and telegraphs; ii) railways; iii) banking; iv) broadcasting; v) coinage and currency; vi) central public sector enterprise; and vii) escheat and lapse
- The states: The receipts from the following form the major sources of non-tax revenues of the states: i) irrigation; ii) forests; iii) fisheries; iv) state public sector enterprise and v) escheat and lapse
- Grants-in-Aid to the states: Constitution provides for grants-in-aid to the state from the central resources. There are two types of grants-in-aid: statutory grants and discretionary grants
- 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
