Part XII - Finance & Property • Article

Article 270 Simplified: Taxes levied and distributed between the Union and the States

Article 270 establishes the 'divisible pool' of central taxes. It mandates that major taxes collected by the Union (such as Income Tax, Corporation Tax, and Central GST) must be shared with the States according to percentages recommended by the independent Finance Commission and ordered by the President.

Official Text

(1) All taxes and duties referred to in the Union List, except the duties and taxes referred to in [articles 268, 269 and 269A], respectively, surcharge on taxes and duties referred to in article 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the Government of India and shall be distributed between the Union and the States in the manner provided in clause (2). [(1A) The tax collected by the Union under clause (1) of article 246A shall also be distributed between the Union and the States in the manner provided in clause (2). (1B) The tax levied and collected by the Union under clause (2) of article 246A and article 269A, which has been used for payment of the tax levied by the Union under clause (1) of article 246A, and the amount apportioned to the Union under clause (1) of article 269A, shall also be distributed between the Union and the States in the manner provided in clause (2).] (2) Such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial year shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax or duty is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed in the manner provided in clause (3). (3) In this article, "prescribed" means, - (i) until a Finance Commission has been constituted, prescribed by the President by order, and (ii) after a Finance Commission has been constituted, prescribed by the President by order after considering the recommendations of the Finance Commission.]

Simple Meaning

Explain Like Ten

The central government puts all the major tax money (like income tax and company tax) into a big bucket. Every five years, the Finance Commission tells the President what percentage of this bucket must be given to state governments to help them run.

Student Mode

Article 270 is the foundation of vertical devolution of revenue in Indian federalism. Following the 80th Amendment (2000), it established a single divisible pool of central taxes (all Union List taxes except surcharges and cesses). The 101st Amendment (2016) expanded this pool to include concurrent Central GST (CGST). The presidential order prescribing the sharing percentage must consider the recommendations of the Finance Commission.

Example

When you pay corporate or income tax to the Central Government, those revenues go into a pool where a set portion (e.g. 41% recommended by the 15th Finance Commission) is distributed back to the states to fund regional development.

Key Takeaway

Article 270 ensures that states receive a constitutional share of all central tax revenues via the divisible pool.

FAQs

Which taxes are excluded from the divisible pool under Article 270?

Surcharges levied under Article 271, and specific-purpose cesses levied by Parliament, which go exclusively to the Central Government.

What is the role of the Finance Commission in Article 270?

The Finance Commission recommends the vertical share (how much is given to states overall, currently 41%) and horizontal share (how the money is distributed among individual states).

Quiz

Which amendment established the 'single divisible pool' of all central taxes under Article 270?

Answer: 80th Amendment Act, 2000

Which of the following is NOT shared with states under Article 270?

Answer: Union cesses and surcharges