States get ₹1.09 lakh crore extra tax share

The extra tax devolution: what happened?

States run schools, hospitals, police and most roads, but the biggest taxes, like income tax and corporation tax, are collected by the Centre. Tax devolution is the bridge between the two.

• The Ministry of Finance released ₹1,09,019 crore to State governments on 31 October 2026, over and above the regular monthly payment.
• It is the second additional instalment in this financial year.
• The aim is to help States speed up capital spending and pay for development and welfare work.
• Uttar Pradesh got the largest share, ₹19,208 crore.
• Normally, 41% of the shareable taxes the Centre collects is passed to States in 14 instalments a year.

How are taxes shared between the Centre and the States?

The Constitution gives the Centre the biggest taxes but gives States most of the spending duties. This gap is called vertical imbalance.

To fix it, Article 270 says taxes collected by the Centre form a “divisible pool” to be shared with States. Cesses and surcharges are not part of this pool.

The Finance Commission, set up by the President every five years under Article 280, recommends what share of the pool goes to States (vertical sharing) and how it is split among States (horizontal sharing).

The split among States uses factors like population, area, forest cover and income distance, so poorer and bigger States get more. That is why Uttar Pradesh, with the largest population, gets the largest share.

What do the key terms mean?

Which laws and Articles apply?

• Article 270: sharing of taxes between the Union and the States.
• Article 280: the Finance Commission, set up every five years by the President.
• Article 275: grants-in-aid to States.
• Article 282: discretionary grants for any public purpose.

Why does the extra tax devolution matter?

What are the problems with the extra tax devolution?

• Cesses and surcharges are kept out of the divisible pool, which shrinks what States get.
• Advance releases help in the short term but do not raise States’ total share.
• Richer States say they get back less than they contribute.
• States depend heavily on the Centre for money.

What should be done next on the extra tax devolution?

• Bring more cesses and surcharges into the divisible pool.
• Help States raise their own revenue, such as property tax.
• Make the timing of releases predictable.
• Link extra money to good-quality capital spending.

What can Prelims ask on the extra tax devolution?

Prelims probability: Expect a question on the Finance Commission under Article 280: set up by the President every five years; it decides the States’ share of Union taxes.

• Finance Commission: Article 280; set up by the President every five years.
• Divisible pool: Article 270; excludes cesses and surcharges.
• States get 41% of the divisible pool, paid in 14 instalments a year.
• Uttar Pradesh gets the largest share of tax devolution.
• Grants-in-aid: Article 275; discretionary grants: Article 282.

How to write about the extra tax devolution in Mains

Practice question (15 marks, 250 words): Explain how tax devolution reduces the gap between the revenue and spending of States. What problems remain?

• Intro: ₹1,09,019 crore extra release on 31 October.
• Vertical imbalance; divisible pool; Finance Commission.
• Criteria for sharing; Uttar Pradesh’s large share.
• Problems: cesses outside the pool, dependence.
• Conclusion: fair, predictable sharing and stronger own revenue.