What is Tax Devolution?

By Ritesh|Updated : September 3rd, 2022

Making suggestions for dividing the net profits of taxes between the Union and the states is one of the main duties of a finance commission, as per Article 280 (3) (a) of the Constitution. The participation of the states in the net revenues of Union taxes is the main method by which resources are transferred from the Centre to the States, making this the most crucial responsibility for each Finance Commission.

Tax Devolution in India

  • Each FC must submit recommendations under Article 280 of the Constitution about the division of net tax revenues between the Union and states (known as vertical devolution) and between states (called horizontal devolution).
  • According to Constitution, FC has the authority to (re)define the financial connections between the Union and the state.
  • It has become necessary to create a body like the Finance Commission of India to outline the financial relationships between the federal and state governments.
  • In light of the elimination of the Planning Commission and the implementation of the goods and services tax (GST), which has radically reshaped federal budgetary relations, the Fifteenth Finance Commission was established on November 27, 2017.

Summary:

What is Tax Devolution?

Tax Devolution is to make recommendations for distributing the net proceeds of taxes between the Union and the states. It is one of the key responsibilities of a finance committee according to Article 280 (3) (a) of the Constitution.

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