Finance – Centre Denies Withholding States’ Tax Share Allegations
Finance – Finance Minister Nirmala Sitharaman on Wednesday firmly dismissed claims made by several Opposition-ruled states that the Union government had failed to release their rightful share from the divisible pool of central taxes. Responding during the Budget debate in the Lok Sabha, she asserted that the Centre has adhered strictly to the Finance Commission’s recommendations.
Centre Cites Finance Commission Mandate
Addressing the House, Sitharaman stated that states have been transferred the full 41 percent share of net proceeds from divisible taxes, as mandated. She clarified that the divisible pool is calculated after excluding cess and surcharge from the gross tax revenue.
She urged state governments to examine whether they have received their due portion from the net proceeds rather than focusing on overall gross tax collections. According to her, discussions centered on gross revenue figures risk creating confusion about how the distribution formula actually works.
Allocation to States Set to Increase in FY27
The finance minister also outlined the scale of financial transfers planned for the coming fiscal years. She said that ₹25.44 lakh crore has been earmarked for states in FY27. This represents an increase of ₹2.70 lakh crore compared to the allocation for FY26.
The revised estimates place the total budget size for FY26 at ₹49.64 lakh crore. For the next financial year, the government has projected total expenditure at ₹53.47 lakh crore, reflecting a 7.7 percent rise over the current fiscal year that concludes on March 31.
Clarification on Cess and Surcharge Distribution
On the question of cess and surcharges, Sitharaman explained that these collections are purpose-driven and are not part of the divisible tax pool shared at 41 percent. However, she emphasized that such funds are not withheld from states.
According to her remarks, states can access these resources by presenting proposals in key sectors such as health, education, and road infrastructure. She stressed that allocations under cess and surcharge are meant to support development initiatives and are separate from the standard tax devolution mechanism.
Credit Growth and Capital Expenditure Figures
Rejecting suggestions that the Centre has constrained borrowing approvals for states, Sitharaman noted that total credit growth has expanded by 13.8 percent during the current financial year.
She further highlighted the government’s capital spending commitments. The headline capital expenditure stands at ₹12.2 lakh crore. When grants to states are included, the effective capital expenditure rises to ₹17.1 lakh crore, equivalent to 4.4 percent of India’s gross domestic product. The figures, she said, reflect the Centre’s continued focus on infrastructure and long-term asset creation.
Political Exchange in the Lok Sabha
The discussion also saw sharp political exchanges. Sitharaman criticized Leader of Opposition Rahul Gandhi, contending that policy decisions taken during the United Progressive Alliance government had compromised farmers’ interests in negotiations at the World Trade Organization.
She also referred to the 2009 Sharm el-Sheikh joint statement, arguing that it had weakened India’s position on issues related to sovereignty and national security in its engagement with Pakistan.
Responding to concerns raised about artificial intelligence and data management, the finance minister said the government is actively encouraging the establishment of cloud infrastructure and data centres within the country. On food security, she stated that ₹2.27 lakh crore has been allocated as food subsidy, underscoring the Centre’s commitment to welfare measures.
As Parliament continues deliberations on the Budget, the exchange highlights ongoing debates over fiscal transfers, Centre-state financial relations, and broader economic policy priorities.