Finance Commission: 41% of taxes go to States; 1% for J&K, Ladakh in FY21

The 15th Finance Commission on Saturday recommended 41 per cent share in the divisible pool of taxes for states and 1 per cent for the newly created Union territories of Jammu & Kashmir and Ladakh for the financial year 2020-21, thus retaining the devolution formula of the earlier Commission.

The 14th Commission had recommended the share of states at 42 per cent in the divisible pool of taxes.

In her Budget Speech, Finance Minister Nirmala Sitharaman said the commission has given its first report pertaining to 2020-21.

"In the spirit of co-operative federalism, I am pleased to announce that we have, in substantial measure, accepted the recommendations of the commission," she said.

The commission would submit its final report to the President during the latter part of the year, for five years beginning 2021-22.

The first report said that for 2020-21, the commission is inclined to leave the vertical split of divisible pool at the same level as recommended by the 14th Commission.

"However, we have to take into account recent changes due to re-organisation of the erstwhile state of Jammu and Kashmir.

"We have notionally estimated that the share of the erstwhile state of Jammu and Kashmir would have come around 0.85 per cent of the divisible pool," the report said.

The commission said it believes there is a strong case for enhancing the share to the two UTs (erstwhile Jammu and Kashmir) from 0.85 per cent to 1 per cent to meet the security and other special needs of the Union territories of Jammu and Kashmir and Ladakh.

"Since this enhancement has to be met from the Union's resources, we recommend that the aggregate share of states may be reduced by 1 percentage point to 41 per cent of the divisible pool," the commission said.

Further, the commission has recommended Rs 90,000 crore as grants to local bodies for 2020-21, which is 4.31 per cent of the estimated divisible pool.

For determining state-wise allocations for disaster risk management, the panel headed by former bureaucrat N K Singh has suggested a new methodology which combines capacity, risk exposure and proneness to hazard and vulnerability.

The total amount recommended for states is Rs 28,983 crore in 2020-21, of which Rs 22,184 crore is the Union share, towards disaster risk management.