(1) All taxes and duties referred to in the Union List, except the duties and taxes referred to in articles 268 and 269, respectively, surcharge on taxes and duties referred to in article 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the Government of India and shall be distributed between the Union and the States in the manner provided in clause (2).

 

 

(2) Such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial year shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax or duty is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed in the manner provided in clause (3).

 

(3) In this article, “prescribed” means, —

 

(i) until a Finance Commission has been constituted, prescribed by the President by order, and

 

(ii) after a Finance Commission has been constituted, prescribed by the President by order after considering the recommendations of the Finance Commission.

Debate Summary

Draft Article 251, Draft Constitution of India (1948)

(1) Taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner provided in clause (2) of this article.

(2) Such percentage, as may be prescribed, of the net proceeds in any financial year of any such tax, except in so far as those proceeds represent proceeds attributable to States for the time being specified in Part II of the First Schedule or the taxes payable in respect of Union emoluments, shall not form part of the revenues of India, but shall be assigned to the States within which that tax is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed.

(3) For the purposes of clause (2) of this article, in each financial year such percentage as may be prescribed of so much of the net proceeds of taxes on income as does not represent the net proceeds of taxes payable in respect of Union emoluments shall be deemed to represent proceeds attributable to States for the time being specified in Part II of the First Schedule.

(4) In this article-

(a) "Taxes on income" includes any sum levied by the Government of India in lieu of any tax on income as referred to in clause (a) of the proviso to article 266 of this Constitution but does not include a corporation tax;

(b) "Prescribed" means-

(i) Until a Finance Commission has been constituted, prescribed by the President by order, and

(ii) After a Finance Commission has been constituted, prescribed by the President by order after considering the recommendations of the Finance Commission.

(c) "Union emoluments" includes all emoluments and pensions payable out of the revenues of India in respect of which income-tax is chargeable.

 

Draft Article 251 (Article 270, Constitution of India 1950) was discussed on 5 August 1949. It laid down the manner of collection and distribution of of income taxes between the Union and States. This Draft Article provided that the taxes on income excluding agricultural income would be collected by the Union government and then distributed between the Union and States in accordance with this provision. The percentage and manner of distribution of such revenues would be prescribed by the President on considering the recommendations of the Finance Commission.

 

A Member proposed that a minimum percentage of revenue and manner of distribution be detailed within the Draft Article itself. He believed that this fixed percentage would provide certainty to State Governments and enable them to plan their budget. The Chairman of the Drafting Committee argued that the Constitution should not prescribe a fixed percentage of revenue share for the States, the President should decide. The amendment was withdrawn after the Chairman's response.

 

Another member proposed that Parliament by law should determine the amount and manner of distribution of the taxes between the Union and States instead of the President. He felt that the recommendations of the Finance Commission must be debated in the Parliament and an appropriate legislation must be passed. The Chairman of the Drafting Committee opposed this amendment because it would create conflict among representatives of various States. He also believed that the distribution may not be just as some states would have more representatives in the Parliament than others. The Assembly rejected the amendment.

 

The Assembly accepted a minor amendment to replace the words ‘revenues of India’ with ‘Consolidated Fund of India’.

 

Draft Article 251, as amended was adopted on 5 August 1949.

 

Article 270 was amended in 2000 to cover all taxes and duties referred to in the Union List-except stamp duties, tax on sale or purchase of goods and services, surcharge on certain taxes and cess collected for specific purposes.