Constitutional Framework

Articles 268–293 under Part XII regulate fiscal federalism in India.

1. Allocation of Taxing Powers

• Union List & State List taxation
• No tax entries in Concurrent List (except GST)
• Residuary taxation with Parliament

2. Distribution of Tax Revenues

After the 80th and 101st Constitutional Amendments, revenue sharing is categorised into:

• Taxes levied by the Centre, collected by the States
• Taxes assigned to States
• GST under Article 269-A
• Divisible pool under Article 270
• Surcharges under Article 271

3. Grants-in-Aid

• Article 275: Statutory grants via Finance Commission
• Article 282: Discretionary grants
• Temporary grants for specific historical reasons

4. Finance Commission

Article 280 establishes the Finance Commission as the balancing wheel of fiscal federalism, recommending tax distribution and grants.

5. Borrowing Powers

The Centre and States have defined borrowing limits, with Centre consent required in certain cases.

6. Financial Emergency Impact

During a financial emergency, the Centre can:

• Direct financial propriety
• Reduce salaries
• Reserve money bills

Conclusion

Financial relations ensure equitable development and fiscal discipline, preventing both excessive centralisation and fiscal imbalance.

PREVIOUS YEAR QUESTIONS

Analyse the constitutional framework of financial relations between the Centre and States and the role of Finance Commission in fiscal federalism. (MPPSC)

Discuss the fiscal federalism in India. How do constitutional provisions ensure equitable resource sharing between Centre and States?

Examine the changing nature of fiscal relations between Centre and States in India and how GST has impacted it.