What is Tax Devolution?

By Balaji

Updated on: March 30th, 2023

The purpose of Tax Devolution is to propose suggestions for allocating tax net proceeds between the Union and the states. According to Article 280 (3), (a) of the Constitution, one of the principal functions of a finance commission is to make recommendations for splitting the net earnings of taxes between the Union and the states.

Table of content

1. Tax Devolution in India
2. What is Tax Devolution?

Tax Devolution in India

The participation of states in the net revenues of Union taxes is the primary means by which resources are distributed from the Centre to the States, making it the most important task for each Finance Commission.

Under Article 280 of the Constitution, each FC shall offer recommendations on the distribution of net taxable income between the Union and states (known as vertical devolution) and between states (called horizontal devolution).
According to the Constitution, the FC has the ability to (re)define the Union’s and the state’s financial ties.
To outline the financial links between the federal and state governments, it has become necessary to establish an organization such as the Finance Commission of India.
The Fifteenth Finance Commission was founded on November 27, 2017, in response to the abolition of the Planning Commission and the adoption of the goods and services tax (GST), which has dramatically changed federal budgetary ties.

Summary: