Vertical and Horizontal Devolution
The Two Dimensions of Tax Sharing
Tax devolution under the Finance Commission operates on two axes. Vertical devolution determines the aggregate share of central tax revenues transferred to states from the divisible pool. Horizontal devolution determines how that aggregate is distributed among individual states based on a formula with multiple criteria. Both dimensions are constitutionally grounded in Article 280, with the Finance Commission recommending and Parliament accepting the framework.
- Article 270 of the Constitution governs the distribution of net proceeds of taxes between the Union and states.
- The vertical devolution share has progressively increased: 29.5% (12th FC), 32% (13th FC), 42% (14th FC -- a historic jump), 41% (15th FC), 41% (16th FC retained).
- The 16th FC horizontal devolution criteria and weights: Income Distance (42.5%), Population 2011 (17.5%), Contribution to GDP (10% -- new), Demographic Performance (10%), Area (10%), Forest & Ecology (10%).
- The 15th FC weights for comparison: Income Distance (45%), Population 2011 (15%), Demographic Performance (12.5%), Area (15%), Forest & Ecology (10%), Tax Effort (2.5%).
- Income Distance uses the gap between a state's per capita GSDP and the average of the top three high-income states, calculated over 2018-19 to 2023-24 (excluding the pandemic year 2020-21).
● Tracked since February 02, 2026 · last seen February 08, 2026 · updates as the daily brief publishes
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