On February 29, the central government announced that it had disbursed two instalments totaling Rs 1.42 lakh crore as tax devolution to states, in addition to the Rs 72,961 crore released on February 12, 2024.
The cumulative amount of tax devolution, including the early-February release, now stands at Rs 2.15 lakh crore, aimed at bolstering states’ capacity to finance various social welfare programs and infrastructure initiatives, according to a statement by the Union government.
Uttar Pradesh received the largest share, amounting to Rs 25,495 crore, followed by Bihar with Rs 14,295 crore. The distribution of funds among states is determined by various factors, including population size.
The central government disburses tax devolution to states in 14 equal instalments annually, with two months featuring double the usual monthly amount. While traditionally these double-instalment months occur towards the end of the financial year for better financial clarity, recent years have seen these additional payments brought forward due to New Delhi’s favorable fiscal position. In the 2024-25 Budget, the Centre aims to transfer Rs 11.04 lakh crore to states during the fiscal year, translating to approximately Rs 78,892 crore per instalment.
Up until February 2024, the Union government had transferred Rs 10.33 lakh crore. This leaves Rs 71,060 crore to be disbursed to states in March 2024 to meet the revised Budget estimate.
Concerns have been raised by Southern states, including Karnataka and Tamil Nadu, regarding perceived unfair treatment by the Centre in tax devolutions and grants-in-aid over recent years. Responding to these allegations, Union Finance Minister Nirmala Sitharaman refuted them as “incorrect and misleading.”
The distribution of the net proceeds of taxes between the Union and states, as well as the allocation among states, is recommended by the Finance Commission. Currently, based on the Commission’s recommendation, 41 percent of the Centre’s divisible tax pool is annually transferred to states in instalments.
