Union Government Releases Rs 1.73 Lakh Crore Tax Devolution To States For Accelerating Capital Spending

In a move aimed at facilitating state-level economic growth, the Union government has released Rs 1.73 lakh crore for tax devolution to state governments, a significant increase from Rs 89,086 crore allocated in December 2024.

This higher devolution is intended to help states accelerate capital spending and finance critical development and welfare projects.

Tax devolution is a constitutional process where the central government allocates a portion of the tax revenue to the states. 

The division of this revenue is determined by the Finance Commission, which ensures fairness and equity. For the period 2021-2026, the states' share of central taxes has been maintained at 41 per cent, unchanged from 2020-21. 

However, it is lower than the 42 per cent recommended by the 14th Finance Commission for the 2015-2020 period, with a 1 per cent adjustment made to accommodate the newly formed Union Territories of Jammu and Kashmir and Ladakh.

Among the states, Uttar Pradesh received the largest share at Rs 31,039.84 crore, followed by Bihar with Rs 17,403.36 crore and West Bengal at Rs 13,017.06 crore. 

Maharashtra and Rajasthan were allocated Rs 10,930.31 crore and Rs 10,426.78 crore, respectively, while Goa and Sikkim received the smallest amounts of Rs 667.91 crore and Rs 671.35 crore, respectively.

The devolution formula incorporates various factors: 12.5 per cent weightage is given to demographic performance, 45 per cent to income, 15 per cent each to population and area, 10 per cent to forest and ecology, and 2.5 per cent to tax and fiscal efforts, ensuring a comprehensive and balanced allocation model.