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1. FINANCIAL RELATIONS, , Cindiahasa federal Structure, in which a clear distinction, ismade between the Union and State functions and sources of, Tevenue, but the residual powers belong to the Centre Although, the States have been assigned certain taxes wi re levied, and collected by them, they also share in the revenue of certain, Union taxes, and there are certain other taxes which are levied, and collected by the Union but the proceeds of which wholly, 80 to the States. In additio, , the States receive grants-in-aid, of their revenue from the Union| which further increase the, , n the two levels of governments., , Division of Resources, , The Constitution of India makes a clear division of, fiscal powers between the Union (on the centre) and the State, Governments. The Principle adopted for this classification is, that taxes which have an interstate base are levied by the, Union, while those with a local base are levied gy the States., The residuary powers ‘belong to the Union, \, , © Union taxes as laid do, Schedule of the Constitution of Indi:, , X (C. Taxes on income oth, 2. Corporation tax, 3. Customs, on alcoholic liquors and, in medical or toilet Preparatio;, duties other than on agricultura, value of assets, except agricul, companies, 7. Rates of. stamp duties on financial documents,, , 8. Taxes other than Stamp duties on transactions in stock, exchanges and future markets, 9, Taxes on sale or purchase of, newspapers and on advertisements therein, 10, Taxes on, railway freight and fares, 11, Terminal taxes on goods or Rg, passengers carried by railways, sea, or air, and 12. Taxes on, the saje or purchase of goods in the Course of inter-State trade, , ¢ Gee within the jurisdiction of the States as given in, , List 11 of the Seventh Schedule of the Constitution of India, are as follows;, , wn in List I, Seventh, a, are as under:, , er than agricultural income,, duties, 4. Excise duties except, , Narcotics not contained, ns. 5. Estate and succession, | land, 6. Taxes on the capital, tural land, of individuals and, , , , 999

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PRE ee Na ner erga Re mie Ge, , , , AL Land revenue, 2. Taxes on the sale and purchase, of goods, except newspapers, 3. Taxes on agricultural, income, 4. Taxes on land and buildings, 5. Succession and, estate duties on agricultural land, 6. Excise on alcoholic, liquors and narcotics, 7. Taxes on the entry of goods into, a locai area, 8. Taxes on mineral rights, subject to any, limitations imposed by Parliament, 9. Taxes on the, consumption and sale of electricity, 10. Taxes on vehicles,, animals and boats, 11. Stamp duties except those on, financial documents, 12. Taxes on goods and passengers, carried by board or inland waterways, 13. Taxes on, juxuries including entertainments, betting and gambling,, 14. Tolls, 15. Taxes on professions, trades, callings and, employment, 16, Capitation Taxes, and 17. Taxes, advertisements other than those contained in newspa, , The Union and the State Governments have

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““~ (LU fhe Union Government has exclusive power to, impose taxes which are not specifically mentioned in the, State or Concurrent Lists. | ev, , Thus, the Indian Constitution, being federal in, character, has indicated the nature and scope of functions, of the Union and State Governments and also the taxes, allocated to then the same time, the framers of the, Indian Constitution were aware that the allocation of, , financial resources did not correspond with the assigned, functions and that the resource gap in the States might ~, widen over thé years. Accordingly they provided for the, distrTBution or devolution of financi, , Centre to the States. It was specifically for this Purpose, , 1 Ene, , that Article 280 provides for the setting up of a Finance, , Commission by the President of India every five ears or, , Distribution and Allocation of Central, Revenue Vv, , Apart from the taxes levied and collected by the, States, the Constitution had provided for the revenues for, certain taxes on the Union list to be allocated, partly or, wholly, to the States, These provisions fall into various, categories., , « [There are, in the first place, certain duties which are

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~Ievied bythe Union but are collected and appropriated by, the States. These include stamp duties and excis,, on medical preparations containing alcohol or Natcoti, , ie duties, , Second there are certain taxes which are levieq, and Mccted by the Union, but the entire Proceeds of, which are assigned to the States, in proportion determined, by the Parliament. These taxes include Succession ang, estate duties, terminal taxes on goods and Passengers,, taxes on railway freight and fares, taxes on transactions in, Stock exchanges and futures markets, the taxes on the sale, and purchase of newspapers and advertisements therein), , Thirdly, Central tax on income and Union excise, duties Were levied and collected by the Union but were, shared by it with the States in a prescribed manner, , Finally, the proceeds of additional excise duties, on mill-made textiles, sugar and tobacco, which were, levied by the Union in 1957 in replacement of States’, sales taxes on these commodities, are wholly distributed, among the States in a manner as to guarantee their former, incomes from the disp) sales taxes., , PL Grants-in-aid, As important welfare and, development functions are entrusted to the States, gaps, between their revenues and expenditure have to be, corrected through transference of resources from Centre., This is done partly by arrangements for tax sharing. But, Brants-in-aid by the Union for specific purposes or general, have come to occupy an important place in UnionState financial relations in India. The grants also serve the, purpose of correcting inter-State disparities in resources., They also help in the exercise of a certain measure of, central control and co-ordination over essential ‘su, serviccs and development programmes in differen ;, , e Coane The States are authorised to raise loans !", the market but they also borrow from the Union, Government which gives the latter considerable control, over State borrowing and expenditure} The rate of ann ', borrowing by the States from the Unih has considerably, increased during recent years. Borrowing is made among, other purposes for irrigation and river programmes., agricultural development, community development, industrial housing., , Resources Transferred to the States, , en te, The importance of Central contributions t0 re, remnawone hacievine <lsee feccecTekie? chacine thee”, , fad, , —“, , CUM A oe ee, , A Of, , LA t,

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Z&PS§, , es, 7, , aZmo<“(@ eas 5 ey %=7 &, , aaa, , Ss PPRUS, , , , Commission POF the Specific, gon-Plan revenue resoy, (ommission are to make, inrespect of, , ' the States,, , 2. THE FINANCE COMMISSION AWARDS, , Undg the provisions of Article 280 of the, , President is Tequired to appoint a Finance, , urpose of devolution of, rees| The functions of the, tecommendations to the President, , (i) the distribution of, shared between th, theallocation of sh, , het proceeds of taxes to be, € Union and the States and, are of such proceeds among, , (ii) the principles which should govern the, payment by the Union of grants-in-aid to the, Tevenues of the States, and, , (iii) any others matter concerning financial, relations between the Union and the States. |?, , The appointment of the Finance Commission is of, , importance, for it enables the financial relation, , een the Centre and the units to be altered in accordance, ith changes in need and circumstances. The elasticity in, ionship introduced by this provision has great, , ‘tivantage,, , 4, ,. }2Finance Commissions have so far been appointed, » the Government since the inauguration of the, itution in 195 1{The recommendations of the Finance, issions can be grouped under three heads—, , i, , d, , mw Aa A A we ff FA ft BF, , Moma ao, , =, , eS, , 2