1.States' Fiscal Space Post GST (Fiscal Federalism)
What & Where
GST regime—101st Amendment 2017—unified indirect taxes under destination principle across India, curbing States’ tax autonomy
GST Compensation Cess ends July 2025, exposing revenue-weak States to fiscal shocks
Finance Commission (Art 280) decides Centre–State tax split; current recommended vertical share 41%
Quick Facts for MCQs
Legal & Policy
- Amendment 101 centralised indirect taxation; merged 17 levies into GST
- Article 279A sets GST Council; quorum 50%; Centre’s 33 % vote blocks 75 % decisions
- Article 280 mandates quinquennial Finance Commission for vertical & horizontal devolution
Fiscal Imbalance
- Imbalance; Centre retains ~₹12 lakh crore FY18-23 via non-divisible revenues
- States handle > 52 % national expenditure, yet collect only one-third of taxes
- Compensation delay ₹78,000 crore in FY22 heightened Centre-State distrust
Proposed Reforms
- Recommendation; share Personal Income Tax 50:50, adding ~₹7 lakh crore yearly to States
- Suggestion; allow 1–2 % State surcharge on PIT, Canada-style flexibility
- Call; merge all cesses/surcharges into divisible pool, yielding extra ₹1.5 lakh crore to States
Key Data Points
| Feature | Data-Point |
|---|---|
| Centre voting share in GST Council | 33 % (effective veto) |
| GST compensation cessation date | 1 July 2025 |
| States’ recommended share in Central taxes (15th FC) | 41 % of divisible pool |
| Actual States’ share in Gross Tax Revenue FY23 | < 33 % |
| Cesses & surcharges, BE 2025-26 | ₹4.23 lakh crore |
| Non-shareable cesses share in Centre’s receipts | 18 % |
| Centre vs State tax collection ratio | 67 : 33 |
| Average State dependence on Central transfers | 44 % of revenue; Bihar 72 %, UP 61 % |
| States’ debt-to-GSDP FY24 | 31.2 % (above FRBM limit) |
Related UPSC Prelims PYQs
Following the Constitution (One Hundred and First Amendment) Act, 2016, the Parliament of India enacted quite a few GST Acts in the year 2017. Which one of the following does not fall in this category?
Arrange the following sources of revenue of the Central Government in ascending manner in terms of percentage contribution to the total revenues of the Central Government in 2023-24:



