Part XII - Finance & Property • Article

Article 286 Simplified: Restrictions as to imposition of tax on the sale or purchase of goods

Article 286 restricts State governments from taxing sales or transactions that occur outside their borders or in the course of international import/export. It ensures only the Central Government can regulate taxes on inter-state commerce and international trade. This article was amended by the 101st Amendment (2016) to replace sales tax with the GST framework (changing 'sale or purchase' to 'supply of goods or services').

Official Text

(1) No law of a State shall impose, or authorise the imposition of, a tax on the supply of goods or of services or both, where such supply takes place— (a) outside the State; or (b) in the course of the import of the goods or services or both into, or export of the goods or services or both out of, the territory of India. (2) Parliament may by law formulate principles for determining when a supply of goods or of services or both takes place in any of the ways mentioned in clause (1).

Simple Meaning

Explain Like Ten

A state government cannot put taxes on things being sent out of India to other countries (exports) or coming into India from abroad (imports). They also can't tax things sold in other states.

Student Mode

Article 286 restricts the territorial jurisdiction of State tax laws. States cannot impose taxes on the supply of goods or services if it takes place (a) outside the State, or (b) in the course of import/export. Clause (2) empowers Parliament to define the principles for determining when a supply occurs outside the state or in import/export. This article was heavily amended by the 101st Amendment (2016) to replace sales tax concepts with GST (supply of goods/services).

Example

If a company in Karnataka exports software or goods to the USA, the Karnataka State Government cannot impose local taxes on this export. Similarly, if goods are shipped from Gujarat to Delhi, Delhi cannot impose a state tax on the transaction during its transit; the rules for inter-state supply taxes are defined by Parliament under GST.

Key Takeaway

States are forbidden from taxing imports, exports, and transactions occurring outside their borders, leaving inter-state commerce regulation to Parliament.

FAQs

Can a State tax the sale of goods during import?

No. Under Article 286(1)(b), transactions in the course of import into India are immune from state-level taxation.

How did the 101st Amendment (2016) affect Article 286?

It replaced the phrase 'sale or purchase of goods' with 'supply of goods or of services or both' to implement the Goods and Services Tax (GST) framework and omitted clause (3) which regulated goods of special importance.

Quiz

Which amendment substituted 'supply of goods or services' for 'sale or purchase of goods' in Article 286?

Answer: 101st Amendment

Can a State tax a transaction that constitutes an export out of India?

Answer: No, it is forbidden under Article 286