Cess, surcharges, and shortfalls: The great Centre-state revenue tug of war

Tax devolution remains a tale of bypassing Finance Commission recommendations

The Union Budget has projected tax devolution to states at ₹14.22 trillion for 2025-26, which constitutes one-third of the gross tax receipts of the Centre. This is only slightly more than the 33.1 per cent projected at the revised level for the current financial year. In this respect, the devolution in proportion to gross tax receipts would be the highest in FY26 since the Covid-hit year of 2020-21.

 

However, devolution over these years has been much lower than the 15th Finance Commission’s recommendation of 41 per cent, leaving less than the suggested funds to states for their needs. During the