Federal finance refers to the system of assigning the source of revenue to the Central as well as State Governments for the efficient discharge of their respective functions i.e. clear-cut division is made regarding the allocation of resources of revenue between the central and state authorities.
Division of Powers: In our Constitution,
there is a clear division of powers so that none violates its limits and tries to encroach upon the functions of the other and functions within own sphere of responsibilities. There are three lists enumerated in the Seventh Schedule of
constitution. They are: the Union list,the State list and the Concurrent List.
TheUnion List consists of 100 subjects of national importance such as Defence,Railways, Post and Telegraph, etc.
The State List consists of 61 subjects of local interest such as Public Health,Police etc.
The Concurrent List has 52 subjects
important to both the Union and the State, such as Electricity, Trade Union,Economic and Social Planning, etc.
Central State Financial Relationship:
(I) Union Sources:
1. Corporation tax 2. Currency, coinage and legal tender,foreign exchange.
3. Duties of customs including export duties.
4. Duties of excise on tobacco and certain
goods manufactured or produced in India.
5. Estate duty in respect of property other
than agricultural land.
6. Fees in respect of any of the matters in
the Union List, but not including any fees taken in any Court.
7. Foreign Loans.
8. Lotteries organized by the Government of India or the Government of a State.
9. Post Office Savings Bank.
10. Posts and Telegraphs, telephones,wireless, Broadcasting and other forms of communication.
11. Property of the Union.
12. Public Debt of the Union.
13. Railways.
14. Rates of stamp duty in respect of Bills
of Exchange, Cheques, Promissory Notes, etc.
15. Reserve Bank of India.
16. Taxes on income other than agricultural
income.
17. Taxes on the capital value of the assets, exclusive of agricultural land of individuals and companies.
18. Taxes other than stamp duties on
transactions in stock exchanges and future markets.
19. Taxes on the sale or purchase of
newspapers and on advertisements published therein.
20. Terminal taxes on goods or passengers,
carried by railways, sea or air.
(II) State Sources:
1. Capitation tax
2. Duties in respect of succession to
agricultural land.
3. Duties of excise on certain goods produced or manufactured in the State,such as alcoholic liquids, opium, etc.
4. Estate duty in respect of agricultural land.
5. Fees in respect of any of the matters in the State List, but not including fees taken in any Court.
6. Land Revenue.
7. Rates of stamp duty in respect of documents other than those specified in the Union List.
8. Taxes on agricultural income.
9. Taxes on land and buildings.
10. Taxes on mineral rights, subject to
limitations impose by Parliament relating to mineral development.
11. Taxes on the consumption or sale of
electricity.
12. Taxes on the entry of goods into a local area for consumption, use or sale therein. 13. Taxes on the sale and purchase of goods other than newspapers.
14. Taxes on the advertisements other than those published in newspapers.
15. Taxes on goods and passengers carried by road or on inland waterways.
16. Taxes on vehicles.
17. Taxes on animals and boats.
18. Taxes on professions, trades, callings and employments.
19. Taxes on luxuries, including taxes on
entertainments, amusements, betting and gambling.
20. Tolls.
3)Taxes levied and collected by the union but Assigned to the States(Art.269):
1. Duties in respet of succession to property other than agricultural land.
2. Estate duty in respect of property other
than agricultural land.
3. Taxes on railway fares and freights.
4. Taxes other than stamp duties on transactions in stock exchanges and future markets.
5. Taxes on the sale or purchase of newspapers and on advertisements
published therein
6. Terminal taxes on goods or passengers
carried by railways, sea or air.
7. Taxes on the sale or purchase of goods
other than newspapers where such sale or purchase taxes place in the course of
inter-State trade or commerce.
(IV) Duties levied by the Union but collected and Appropriated by the states (Art.268):
Stamp duties and duties of excise onmedicinal and toilet preparation (those mentioned in the Union List) shall be levied by the Government of India but shall be collected.
(i) In the case where such duties are leviable within any Union territory, by the Government of India.
(ii) In other cases, by the States within which such duties are respectively leviable.
(v) Taxes which are Levied and Collected
by the Union but which may be Distributed between the Union and the States (Arts.270 and 272)
1. Taxes on income other than agricultural
income.
2. Union duties of excise other than such
duties of excise on medicinal and toilet preparations as are mentioned in the Union List and collected by the Government of India.“Taxes on income” does not include
corporation tax. The distribution of income-tax proceeds between the Union and the States is made on the recommendations of the Finance Commission.
