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Centre-State Financial Relations

Detailed explanation of Centre-State Financial Distribution

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📊 Central State Fund Sharing - Introduction

The Constitution of India defines the fiscal relations between the Central and State Governments

🏛️ Financial Sharing System - SVG Overview
🏛️ Centre-State Fund Sharing System 📜 Constitution Part XII: Articles 268-293 💰 Tax revenue sharing Tax Revenue Distribution Articles 268-272 🎁 Grants Grants-in-Aid Article 275, 282 🏦 Loans Loans & Borrowings Articles 292-293 Central taxes Income Tax, GST Customs, Excise State taxes VAT, Stamp Duty Land Revenue Legal Statutory Article 275 Optional Discretionary Article 282 Loan Centre: 292 State: 293 ⚖️ Finance Commission - Article 280 Once in 5 years | Central-State tax sharing ratio recommended 15th FC: 41% for States | 16th FC: Arvind Panagariya
📜 Important Articles
Article Explanation
268 Central and State Stamp Duties
269 Taxes levied by the Center and assigned to the States
270 Central-State Apportionment Taxes (Income Tax)
271 Surcharge on central taxes
275 Statutory Grants
280 Finance Commission
282 Discretionary Grants
292 Central Government Loan
293 State Government Loan

💰 Tax revenue sharing methods

📊 Tax Distribution Types - SVG
💰 Tax Revenue Sharing - 4 Types 📋 Type 1: Article 268 Center will levy → State will collect Stamp Duties Medicinal Preparations 🎯 100% to state Center Levies, State Collects & Retains 📋 Type 2: Article 269 Central levy and collection → to state CST (Sale of Goods) Consignment Tax 🎯 100% to state Center Levies & Collects, Assigns to States 📋 Type 3: Article 270 - Divisible Pool (Important!) Central levy and collection → Central + State sharing Income Tax CGST IGST Central Excise Customs Service Tax Central: 59% (15th FC) States: 41% (15th FC) 📋 Type 4: Article 271 - Surcharge Surcharge on central taxes 🎯 100% central No sharing - Exclusive to Centre ⚠️ Cess - No Sharing! Education Cess, Health Cess, Swachh Cess 🎯 100% central Does not belong to Divisible Pool
📊 Types of Tax Sharing - Comparison Table
Article Type provision Collection to whom
268 Stamp Duties middle State 100% State
269 CST, IGST middle middle 100% State
270 Income Tax, CGST middle middle 59:41 Partition
271 Surcharge middle middle 100% central

🎁 Grants-in-Aid & Loans

📊 Grants Types - SVG
🎁 Grants-in-Aid 📜 Article 275 Statutory Grants Statutory Grants • Based on recommendation of Finance Commission • SC/ST Welfare & Tribal Areas • Mandatory Subsidy 📜 Article 282 discretionary grants Discretionary Grants • At the discretion of Central Govt • CSS (Centrally Sponsored Schemes) • Optional Subsidy 🏦 Borrowings 📜 Article 292 Central Government Loan • Consolidated Fund of India is responsible • Delimitation by Parliament Domestic & Foreign Debt 📜 Article 293 State Government Loan • Consolidated Fund of State is responsible • Central Government approval is required Domestic credit only
📊 Grants Comparison Table
feature Article 275 (Statutory) Article 282 (Discretionary)
Character Compulsory option
recommendation Finance Commission Central Govt
Purpose SC/ST Welfare, Tribals General Purposes
Example Tribal Area Grants CSS Schemes
condition specific purpose Central option
🏦 Borrowings Comparison
feature Article 292 (Centre) Article 293 (State)
Who owes? Central Govt State Govt
permission Parliament Central Government + Legislature
Type of loan Domestic + Foreign Domestic only
Responsible CFI CFS
FRBM Act applicable applicable

🎯 Financial Sharing - Shortcuts & Memory Tricks

🧠 Quick Memory SVG
🎯 Financial Sharing - ARTICLE TRICKS 📜 268-272 TRICK "268 = S for Stamp" "269 = C for CST" "270 = D for Divisible" 🎁 GRANTS TRICK "275 = S for Statutory" "282 = D for Discretionary" 5 = Mandatory, 2 = Optional 🏦 LOANS TRICK "292 = Center (2 = C)" "293 = State (3 = S)" 2 before 3 = Center First! 💰 SHARE DISTRIBUTION TRICK 59 : 41 = Center : State "5+9=14, 4+1=5" → 14th FC Jump! 15th FC: N.K. Singh - 41% to States ⚠️ 100% CENTER TRICK "SuCe = Center Only" Surcharge (271) + Cess = NO Share Does not join the Divisible Pool! 🎯 MASTER ONE-LINER "268-S, 269-C, 270-D, 271-Sur | 275-Stat, 282-Disc | 292-Cent, 293-State" Stamp-CST-Divisible-Surcharge | Statutory-Discretionary | Centre-State Loan
📝 Quick One-Liners
Tax sharing Articles 268-272 (Part XII)
Divisible Pool Article 270
Surcharge Article 271 - Center Only
Statutory Grants Article 275
Discretionary Grants Article 282
Finance Commission Article 280
Center Loan Article 292
State Loan Article 293
15th FC State Share 41%
Cess & Surcharge 100% Center (No Division)
❓ Frequently Asked Questions
Q1: In which Article is Divisible Pool?
A: Article 270
Q2: How much is the state's share in the 15th FC?
A: 41%
Q3: Will Cess & Surcharge be shared?
A: No - 100% central
Q4: Which Article of Statutory Grants?
A: Article 275
Q5: Can the state take foreign loans?
A: No - Domestic credit only (Art 293)
Q6: Whose permission is required to take state loan?
A: Permission of Central Government (Art 293)
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