Article 270 deals with taxes that are levied and collected by the central government and how they are distributed between the central government and the state government according to a predetermined formula which is provided by the Finance Commission once every 5 years.

In the operational period of 2015-2020, the share of the states in the net proceeds of the Union tax revenue was 42% according to the 14th Finance Commission. Fifteenth Finance Commission has fixed the States' share at 41%.

Due to the controversies surrounding the terms of reference of the 15th Finance Commission, this topic is very important for the UPSC Exam.

Taxes Levied And Collected By The Centre But Distributed Between The Centre And The States - Constitutional Provisions

• Article 270(1) lays down the procedure for the appropriation of all taxes except,
  • Taxes mentioned in Article 268
  • Taxes mentioned in Article 269
  • Taxes mentioned in Article 269A
  • surcharge on taxes and duties mentioned in Article 271
  • any cess levied for a specific purpose
• These taxes are levied and collected by the Union and shall be distributed between the States and the Central Government.
• It may include taxes such as Excise Duty on Non-GST products, Income Tax, Basic Customs Duty etc.
• The 101st Constitutional Amendment added Articles 270(1A) and 270(1B). Article 270(1A) provides that taxes collected under Article 246(1) are distributed between the centre and the state. Similarly, Article 270(1B) provides that tax collected on interstate trade (IGST) is also distributed between centre and state.
• Article 270(2) provides the manner of distribution of the collected taxes and it doesn’t become a part of the Consolidated Fund of India.
• According to Article 270(3), the President of India will prescribe the manner in which all central taxes formed in one central pool shall be distributed as per the Finance Commission recommendations.

Conclusion

• India is a large country with people from various communities, wealth levels, and income levels. Taxation cannot be the same for everyone. This is one of the reasons why India's tax system has been so difficult for so long.
• The procedure has grown smoother since the establishment of the GST, which is an all-inclusive indirect tax that has helped eliminate the cascading effect that existed previously.
• To summarise, the Parliament's rights are unrestricted, and the Indian Constitution grants the Parliament broad powers that are neither rigorous nor consistent. As a result, there exist provisions that can amend the rules of law based on future demands.

FAQs

MCQs

1. Which Article of the Indian Constitution governs the distribution of certain taxes between the Centre and states?

A) Article 268
B) Article 269
C) Article 270
D) Article 271

2. Who recommends the distribution ratios for taxes under Article 270?

A) Union Government
B) Comptroller and Auditor General
C) Finance Commission
D) State Legislatures

3. Which of the following taxes is typically distributed between the Centre and states?

A) Income Tax
B) Land Tax
C) Agricultural Tax
D) Wealth Tax

4. How often is the Finance Commission constituted to review tax distribution?

A) Every 3 years
B) Every 5 years
C) Every 7 years
D) Annually

5. What is the primary objective of tax distribution between the Centre and states?

A) To centralize tax revenue
B) To ensure balanced fiscal development
C) To support only state projects
D) To reduce the Centre’s tax collection

GS Mains Questions and Model Answers

Q1: Explain the significance of Article 270 in the Indian Constitution. How does it impact Centre-State financial relations?

Answer: Article 270 ensures that taxes collected by the Centre are redistributed to states based on Finance Commission recommendations, fostering cooperative federalism. This arrangement balances fiscal needs, enabling states to undertake developmental projects, reduce regional disparities, and promote equitable growth. By securing financial resources, states can fulfill their duties effectively, strengthening Centre-State relations and supporting the broader goals of national development.

Q2: Discuss the role of the Finance Commission in implementing Article 270. How does it ensure fairness in tax distribution?

Answer: The Finance Commission, constituted every five years, assesses the fiscal needs and capacities of each state to recommend tax-sharing ratios. By considering factors like population, income levels, and regional requirements, it ensures equitable tax distribution. This process balances national resources, aids in narrowing regional inequalities, and promotes balanced development across states, aligning with Article 270’s objectives.

Q3: Analyze the challenges in implementing Article 270. What are the implications for states with limited revenue-generating capacity?

Answer: Challenges in implementing Article 270 include dependency on the Centre, potential delays in Finance Commission recommendations, and evolving state needs. States with limited revenue-generating capacity rely heavily on shared taxes, which can create fiscal stress if resources are insufficient. Addressing these issues requires timely Finance Commission reviews, increased state autonomy in revenue generation, and the use of data-driven analysis to adapt to changing financial landscapes.

Previous Year Questions on Article 270

1. UPSC CSE Prelims 2020:

Question: Which body recommends the distribution of taxes between the Centre and states under Article 270?

A) Planning Commission
B) Finance Ministry
C) Finance Commission
D) NITI Aayog

Answer: (C)

Explanation: The Finance Commission, established every five years, is responsible for recommending tax distribution ratios between the Centre and states as per Article 270.

2. UPSC CSE Mains 2019 (GS Paper 2):

Question: "Examine the role of Article 270 in shaping financial relations between the Centre and states. Discuss the significance of the Finance Commission's recommendations."

Answer: Article 270 plays a vital role in Centre-State fiscal relations, ensuring revenue sharing for balanced development. The Finance Commission’s recommendations on tax distribution ratios help address regional disparities and empower states financially, fostering cooperative federalism.

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