Allocation of Resources between Centre and State

The allocation of resources is an important principle that governs how a country uses its resources. As with the government of any country, the Government of India requires enormous sums of money to employ resources and carry out projects. The government collects finances or related resources in multiple ways, and the most common method is through taxes. The allocation of taxes depends on the type of tax. For instance, cess, business tax, and property tax are allotted to the Central or Union governments. 

Similarly, taxes such as property tax and import duties are accounted for by the state government. Additionally, equitable divisions are another way to share resources among both governments regardless of who collected them. India has a quasi-federal system of government, and the resources are allocated between the centre and states. Moreover, the framework of financial distribution of all resources is given under articles 268 to 281 of the Indian constitution. 

Exclusive Allocation of Taxes

Most of the taxes that make money, like income tax, property tax, sales tax, etc., are under India’s 7th Schedule of the Indian Constitution. Here is a brief classification of taxes.

Taxes allotted to the central government

The Union government imposes taxes on a variety of events. Some of them are custom duties and export activities, federal taxes, excise duty on tobacco, fibres, cloth, and other products, business taxes, customs duties just on investment amount of individual and corporate assets, property duty and succession duty in regard to landholdings apart from farmland. 

Taxes allotted to state government

Taxes such as State taxes, land Income, Stamp, Succession, Property Tax, Income Tax on agricultural land, passenger taxes and import duties on water and land, property rights, and mineral rights are allocated to the state government. Aside from this, taxes levied on pets, on-road vehicles, advertisements, electricity, leisure and entertainment items are also allotted to the state government. 

Equitable divisions (/distribution)

It is the form of allocation where any levied tax is shared with other governments. Some examples are stamp duty on commercial debts, etc., and taxes on medical and toilet preparations containing alcohol. Moreover, an act named FRBM act was amended to mention the nature of shocks which will necessitate target relaxations of financial resources. This law suggested that income, fiscal deficits, tax rates, and remaining balance debts all be represented as a percentage of GDP. Furthermore, the distribution of resources in equitable divisions is given below. 

Taxes collected by the state government but distributed to the union government

These taxes are levied and collected by the state government, but they are later distributed to the union from wherever they were collected. Some examples are as follows

• Stamp duties on:
  • Bills of exchange, 
  • Checks
  • Money orders
  • Billing of landings
  • Letters of credit
  • Insurance plans
  • Stock transfers

• Excise duties such as:
  • Therapeutic toilet preparations containing liquor

• Morphine
• Indian hemp
• Addictive medicines

Taxes collected by the union government but distributed to the state government

This distribution is the converse of above, here, the Union Government levies and collects these taxes, but they are then given to the states from whence they were obtained.

• Property taxes on non-agricultural land succession.
• State duty on real estate besides agricultural land.
• Taxes on import and export
• Taxes on travelling
• Railway freight and fare taxes.
• Transaction taxes on stock exchanges and futures markets (excluding stamp duties)
• Newspaper taxes as well as ads published in newspapers.
• The tax on the sale or acquisition of items other than newspapers that took place as part of interstate commerce.

Taxes are shared between both governments but collected exclusively by the Union. 

The Union Government levies and collects taxes on non-agricultural revenue and excise fees on medical and toilet treatments, which are then divided equitably among the states. The foundation of distribution was established in the medicinal and toilet preparations (excise duties) act of Parliament in 1955. Moreover, since there are some state governments where the need for financial resources is much bigger than general, Grant in aid are provided by the Union to needy state governments to promote the welfare of tribal areas.  

Conclusion

We learned the distribution of revenue from financial sources among state and union governments from all the above. The primary financial resource distributed among governments is taxes. To name some, taxes such as federal taxes, excise duty on tobacco, fibres, and cloth are allocated to the union government. On the other hand, taxes such as land Income, Succession, and income tax on agricultural land are enjoyed by the state government. Aside from it, further, distribution is done via equitable distribution. Lastly, we learned about taxes which are shared but collected exclusively by the Union.