Revision summary
Union and State Lists assign major taxes; GST replaced many split indirect taxes. Article 270 and the Finance Commission fix the States’ share of the divisible pool. Article 275 grants-in-aid aid poorer States. Centrally sponsored schemes add tied funds that States co-finance. Article 293 borrowing needs Union consent when a State still owes the Centre.
Model answer
Introduction
Indian federal finance is a constitutional assignment of taxes, a shareable pool, and grants, not a bargain left only to annual politics. Description must cover Union and State lists, Finance Commission transfers, GST, and borrowing limits.
Body
Tax assignment
- The Union List holds customs, corporation tax, and residual Union levies; the State List holds alcohol excise, stamps on specified instruments, and several local-type taxes.
- Concurrent and residual design, plus Article 268–269 residual sharing, historically split some duties; GST subsumed many indirect taxes into a dual Centre–State levy.
Sharing and grants
- Article 270 and the Finance Commission recommend the States’ share of the divisible pool and grants-in-aid under Article 275.
- GST is levied by both, with a GST Council; compensation to States was a time-bound political add-on, not a permanent constitutional share.
- Centrally sponsored schemes add purpose-tied money that States co-finance, which is extra-constitutional in form but large in practice.
Borrowing and control
- Article 293 lets States borrow, but Union consent is needed if they still owe the Centre, which gives Delhi a lever.
- The Finance Commission and FRBM-type rules shape fiscal space more than any one budget speech.
Flow diagram
flowchart TD T[Tax lists] --> U[Union elastic taxes] T --> S[State own taxes] U --> FC[Finance Commission share] FC --> ST[State budgets] G[Grants and CSS] --> ST GST[Dual GST] --> ST
Conclusion
Centre–State financial relations rest on list-wise taxes, Finance Commission devolution and grants, dual GST, scheme funds, and controlled State borrowing. The Union’s larger elastic taxes make States structurally dependent even after statutory shares.
Quick related
Students also ask
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Critically examine the impact and role of political parties in the Indian political system.
Next question in the 2021 paper (Q6). View answer →
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Do States get a share of all Union taxes?
No. Only taxes in the divisible pool as defined after cesses and surcharges, which the Union often keeps outside the share.
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Is GST only a Central tax?
No. It is dual: CGST plus SGST on intra-State supplies, and IGST on inter-State supplies, with apportionment rules.
Same topic · past papers
UPPSC has asked this before
These previous-year questions sit on the same topic. Open one to practise the earlier ask.
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2022 · Q6 · UPGS2 · 8 marks
Critically examine the role of Finance Commission in the Centre-State financial relations.
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