Fiscal Federalism
Centre-State Revenue Sharing
India's fiscal federalism, structured under Articles 268–293 of the Constitution, creates a vertical revenue-sharing framework between the Union and states, operationalised primarily through Finance Commission recommendations and the GST Council.
- The 15th Finance Commission (2021–26) and the 16th Finance Commission (2026–31) recommend the vertical devolution rate — the share of Central taxes (from the divisible pool) transferred to states; the current rate is 41%.
- Cesses and surcharges (like cess components of fuel taxes) are NOT included in the divisible pool — meaning states receive no share. Over the past decade, cesses and surcharges have grown from ~10% to ~27% of gross central tax revenues, effectively reducing states' real share.
- Petroleum remains outside GST due to states' resistance to surrendering high-revenue VAT collections; the five petroleum products excluded from GST are crude oil, petrol, diesel, aviation turbine fuel (ATF), and natural gas.
- The exclusion of petroleum from GST leaves a complex dual-taxation structure — central excise from the Centre + VAT from states — creating inter-state price variations and the exact cascading effect visible in the current SAED debate.
● Tracked since February 20, 2026 · last seen July 29, 2026 · updates as the daily brief publishes
02 Apr '26
Government Exceeds FY26 Indirect Tax Collection Target of ₹15.52 Lakh Crore
International Relations
29 Mar '26
Economists Divided Over Impact of Excise Duty Revision on States' Revenue
Polity & Governance
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