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Indian Polity / Centre State Relations

Centre State Financial Relations in India

    Articles 264 to 300 of the Constitution deal with center state financial relations in India. Article 265 says that no tax shall be levied except by the law. That is Executive cannot impose or abolish or alter tax without Legislative permissions. That is no taxation without representation.

    Financial Relations

    • Article 266 says that there shall be Consolidated Funds and Public Accounts of India as well as States.

      • All the revenues that are received by the Government of India and all the borrowings made by India are to be credited to the Consolidated Fund of India.

      • There are two types of expenditures from Consolidated Fund of India. These are expenditures are "expenditure charged on Consolidated Fund" and "expenditure made on Consolidated Fund". Charged on Expenditures are not put to vote in the Parliament. Parliament cannot reduce such expenditures. Whereas Made on Expenditures is put to vote in the Parliament. So, Made on Expenditures can be reduced.

      • Public money in the form of savings ( like National Savings Certificate ), provident fund, post office savings, other bonds, court fines, etc. will go to the Public Account of India. To regulate Public Account of India, Executive action is enough and there is no need of Legislative control and sanction.

    • Article 267 says that there shall be Contingency Fund of India and Contingency Fund of States. Contingency Fund is a kind of permanent advance in the hands of the President and the Governor in the nature of imprest to cope with unanticipated expenditure due to natural calamities like floods, Tsunami, drought, famine, earth quakes, etc.

    • Article 268 talks about taxes levied by Union and collected and appropriated by the States, e.g. Stamp duty.
      Duties of excise on medicinal and toilet preparations, which were earlier collected by States, are now included into Goods and Services Tax (GST).

      Article 268A, which was meant for Service Tax, was repealed as service tax is subsumed into GST. For GST, new Articles, Article 246A, Article 269A and Article 279A were inserted into the Constitution through 101st Constitutional Amendment.

    • Article 275 talks about Grants from the Centre to certain states.

    • Article 280 talks about Finance Commission, which recommends about the distribution of finances from the Centre to the states keeping in view to reduce the fiscal imbalances in the country.

    • Other Articles in Centre State financial relations in India deal with certain Exemptions from taxations, Borrowings by the Union as well as State governments, Contracts, Succession to property, assets, etc.