Allocation and share of resources-distribution of grants-in-aid

D.D. Basu.-“No system of federation can be successful unless both union and states have at their disposal adequate financial resources to enable them to discharge their respective responsibilities under the constitution.”

1. Canada and Australia → revenue allotted to the units are so meager that they have to be substantially satisfied by centre grants.
2. In India the scheme of distribute of sources of revenue between the Centre and states is based on the scheme laid down in the Government of India Act 1935.
3. appointment of finance commission under Art. 280 whose duty is to make recommendations to the President.
   1. the distribution between the Union and the States of the net proceeds of taxes
   2. grants-in-aid of the revenues of the States out of the Consolidated Fund of India
4. Taxing powers are divided between the centre and states.
   1. union List (List I) are leviable by centre
   2. state list (List II) are leviable by the state exclusively.
   3. Art. 265 – No tax shall be levied or collected except by authority of law.
5. Central Government may withdraw the grants upon non-fulfilment of certain conditions by states levied during giving such grant.
6. It generates the centre state co-ordination and co-operation.

Distribution of Revenue between Union and states – Art. 268.

There are certain taxes in the Union List which may be allowed to be retained by the states – wholly or partially.

1. Article 268 – Excise duties on medicinal and toilet preparations –
   1. stamp duties on bills of exchanges cheques, promissory notes, insurance policies, transfer of shares
2. Article 268A – Service tax levied by Union and collected and appropriated by both the Union and the States. (Eighty-eighth Amendment) Act, 2003)
3. Article 269 – Taxes levied and collected by the Union but assigned to the States.
   1. recommendation of the tenth finance commission
   2. 29% shall be given to the states out of total income obtained from certain central taxes and duties
4. Article 269A – Levy and collection of goods and services tax in course of inter-State trade or commerce. such tax shall be apportioned between the Union and the States.
5. Article 270 – Taxes levied and distributed between the Union and the States. “All the taxes and duties returned to in Union List excepts the duties and taxes refered to in Art. 271 and any cess levied for specific purposes under any law made by parliament shall be levied and collected by the Government of India and shall be distributed between the Union and states in the manner provided in clause (2) of Art. 270”.
6. Article 271 – Surcharge on certain duties and taxes for purposes of the Union. Parliament at any time increases any of the duties or taxes mentioned in Art. 269 and 270 by imposing a surcharge, the whole proceeds of any such surcharge shall from part of the consolidated fund of India.

3 kinds of grants-in-aid

1. Article 273 – Grants in lieu of export duty on jute and jute products.
   1. Assam, Bihar, Odisha and West Bengal in lieu of export duty on the jute products.
   2. prescribed by the president with the consultation of finance commission.
   3. given to the states for the period of 10 years from the commencement of the constitution.
2. Article 275 – Grants from the Union to certain States
   1. states which are in need of financial assistance.
   2. schemes of development for the purpose of promoting the welfare of the scheduled tribes.
   3. A Special grant to Assam is given for this purpose.
3. Article 282 – Expenditure defrayable by the Union or a State out of its revenues.
   1. for any public purpose

Taxes for the purposes of States

Article 276 and 277 save the authority of the state to levy taxes on subject now forming part of Union List.

1. Article 276 – Taxes on professions, trades, callings and employments.
2. Article 277 – does not extend to taxes levied under a law passed after the constitution came into force.