States’ Tax Share Cut From 41% to 40%: Centre’s Proposal
Why in the news
The Union Government intends to lower the States’ devolution share from 41% to 40%, sending the plan to the Finance Commission for its view.
Key facts
- Change: 41% to 40%.
- Body: Finance Commission, chaired by Arvind Panagariya.
- Effective from: FY 2026-27.
- Gain to Centre: about ₹350 billion per 1% cut; actual effect depends on yearly tax collections.
Timeline
| Step | Expected date |
|---|---|
| Union Cabinet clearance | By end of March |
| Finance Commission report | By 31 October 2025 |
Possible tensions
- States are expected to object as their fiscal resources shrink.
- It may deepen financial disputes, particularly with opposition-led States.
Exam angle
- Current States’ share: 41%; proposed: 40%.
- Panel head: Arvind Panagariya.
- Applicable year: 2026-27.