In India, which of the following statements is correct about the financial relationship between the Center and the States?
The Union Government collects taxes and distributes them between the Union and the States through the Finance Commission.
Under Article 280, the President constitutes a Finance Commission every five years to recommend how the net proceeds of shareable central taxes are divided between the Union and the States, and among the States.
Taxes collected by the Union are thus shared with States on the Commission’s recommendations (the 15th Finance Commission fixed the States’ share at 41%).
The Union does not control all taxes – the State List (Seventh Schedule) gives States their own taxes, such as on alcoholic liquor, land revenue and stamp duty items.
States do have a role through tax devolution, the GST Council and their own revenues, so the claim of no role is false.
Defence, currency and foreign trade are Union List subjects; States cannot tax them.
Hence, The Union Government collects taxes and distributes them between the Union and the States through the Finance Commission.
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