Union Government disburses Rs 1.73 lakh crore to state government for tax devolution

The Union Government has disbursed Rs 1,73,030 crore to state governments as part of tax devolution which marks a rise from the Rs 89,086 crore distributed in December 2024. This increased devolution meant to support states in enhancing capital spending and funding development and welfare initiatives.

Tax devolution refers to the constitutional process of distributing tax revenues between the central and state governments. The division is based on recommendations by the Finance Commission, which ensures the allocation is conducted fairly and equitably.

Among the states, Uttar Pradesh received the highest allocation of Rs 31,039.84 crore, followed by Bihar with Rs 17,403.36 crore and West Bengal with Rs 13,017.06 crore. Maharashtra and Rajasthan were allocated Rs 10,930.31 crore and Rs 10,426.78 crore respectively. Smaller states such as Goa and Sikkim received Rs 667.91 crore and Rs 671.35 crore.

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From 2021 to 2026, the Finance Commission recommended maintaining the states’ share in central taxes at 41 percent, consistent with the 2020–21 ratio.

This is a reduction from the 42 percent share recommended by the 14th Finance Commission for 2015–2020, with the adjustment accounting for the creation of the Union Territories of Jammu and Kashmir, and Ladakh.

The Finance Commission uses specific criteria to determine devolution amounts for each state. These include a 12.5 percent weightage for demographic performance, 45 percent for income, 15 percent each for population and area, 10 percent for forest and ecology, and 2.5 percent for tax and fiscal efforts.

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