. . Financial Relations Finances are very fundamental in the successful operation of federal system. Indian Constitution distributes financial ( powers between the union and States in a comprehensive arrangement that is broadly modeled on the Government of India Act.
There are two sources of revenue distributed by the Constitution namely Tax Revenue and Non-tax Revenue. A) Tax Revenue Distribution There are five important ways in which the tax revenues are distributed between the union and State Governments. . Certain taxes like Corporation tax and Custom tax are exclusively allotted to the Central Government .
Certain taxes like sales tax are exclusively allotted to the States . Certain taxes are levied by the Union but collected and appropriated by the concerned States and the examples are stamp duties on Bills of Exchange and Excise duties . Certain taxes are levied and collected by the Union Government but the proceeds Tax Revenue Distribution Taxes levied by Centre collected by States Taxes Exclusive to States Taxes Exclusive to Centre Taxes levied, collect by Centre but given to the State Taxes levied collected by Centre distributed to States are assigned to the States in which they are levied like the taxes on the sale of advertisements in newspapers. .
Certain taxes are levied and collected by the Central Government and are distributed between the union and State Governments in a certain proportion like the tax on income other than an agricultural income B) Non-tax Revenue Distribution Both the union and State Governments are provided with non-tax revenue sources. The Union Government gets its revenue from the receipts from commercial and industrial undertakings relating to central subjects like Industrial Finance Corporation. It gets its revenue from Railways, Posts and Telegraphs, Broadcasting etc The State Governments get revenue from the receipts of commercial enterprises and industrial undertakings allotted to them. The sources among others include forests, irrigation, electricity, road transport.
The Constitution understands the greater financial needs of certain States and therefore the article asks the Union Government to provide Grants-in- Aid to the States like Assam, keeping in mind the imperative of the development and welfare of the tribal population. Finance Commission The president of India consitutes a Finance Commission once in every five years. The article of the Constitution describes the composition of the Finance Commission. It will have one Chairman and four other members.
The Chairman will be a person with experience in public affairs and the members will have experience in financial administration, special knowledge of economics, special knowledge of public accounts and government finances, and one member will have the qualification of a High Court judge. Finance Commission will provide recommendations in the following manner: . For the distribution of net proceeds of taxes between the Centre and States . Principles governing grants-in-aid .
Measures needed to increase the Consolidated Fund of India or States to supplement the resources of the Panchayat Bodies . Measures needed to increase the Consolidated Fund of India or States to supplement the resources of the Urban Local Bodies . Any other matter referred by the president So far fourteen Finance Commissions have been constituted once in every five years