The Indian constitution focuses on reconciling the country’s unity while giving the power to maintain state to the State governments. It is a known fact that the union has been assigned larger powers than the state governments, but it is not of quality instead degree that matters the most. In India, the Centre-States relations comprise the core elements of federalism. The Central Government and State Government coordinate with each other for the well-being and safety of the citizens of India. They work together in every possible aspect like the field of environmental protection, terror control, family control, and socio-economic planning. All the essential features of a federation are depicted in the Indian constitution. It is often defined to be quasi-federal in nature. It is generally said that the Indian Constitution is primarily federal in nature even though it has unique features that enable it to assume unitary features upon the time of need. Federal but its spirit is unitary.
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Central State Financial Relations:
The Indian Constitution has made detailed provisions, regarding the distribution of the taxes as well as non-tax revenues and the ability of borrowing, supplemented by provisions for grants-in-aid by the Union government to the State Government. According to Article 268 to 293 which deals with the provisions of financial relations between Central and States. It is the Constitution that divides the taxing powers between the Central and the state government. The Parliament has authority to levy taxes on subjects enumerated in the Union List, whereas the state legislature has power to levy taxes on subjects enumerated in the State List. Both the central and the states can levy taxes on the subjects enumerated in Concurrent List whereas residuary power of taxation can be executed by the Parliament only.
Distribution of the tax-revenue:
1. Duties distributed by the Union but Collected and Appropriated by the States, for example Stamp duties on bills of Exchange, etc., and Excise duties on medical and toilet preparations containing alcohol. These taxes don’t contribute for the part of the Consolidated Fund of India, but are assigned to that state only.
2. The Service Tax are Levied by the Centre but Collected and Appropriated by the Centre and the States.
3. Taxes are distributed and collected by the Union, but Assigned to the States for example, taxes on the sale and purchase of goods in the course of inter-state trade or commerce or the taxes on the consignment of goods in the course of inter-state trade or commerce.
4. The Taxes distributed and Collected by the Union and Distributed between Union and the States: Certain taxes shall be levied as well as collected by the Union, but their proceeds shall be distributed between the Union and the States in a certain proportion, in order to effect on equitable division of the financial resources. This category includes all taxes referred in Union List except the duties and taxes referred to in Article 268, 268-A and 269; surcharge on taxes and duties mentioned in Article 271.
5. Exchange on certain duties and taxes for purposes of the Union for example, Parliament can increase any of the duties or taxes referred in those articles for purposes of the Union and the whole proceeds of any such surcharge shall form part the Consolidated Fund of India.
Grants-in-Aid
In addition to sharing of taxes between the Center and the States, the Constitution provides for Grants-in-aid to the States from the Central resources.
There are two types of grants,
1. Statutory Grants: These grants are given by the Parliament out of the Consolidated Fund of India to such States which are in need of assistance. Various States may be granted different sums. Specific grants are also given to promote the welfare of scheduled tribes in a state or to raise the level of administration of the Scheduled areas therein (Art.275).
2. Discretionary Grants: Center provides certain grants to the states on the recommendations of the Planning Commission which are at the discretion of the Union Government. These grants are given to help the state financially to fulfill plan targets (Art.282).
In case of Emergency
- It is given that during National Emergency the President by order can direct that all provisions regarding division of taxes between Union and States and grants-in-aids remain suspended.
- In such suspension shall not go beyond the expiration of the financial year in which the Proclamation ceases to operate.
- During financial emergency the Union can give directions to the States.
- The union can assign the state to observe such canons of financial propriety as specified in the direction.
- The union can assign the state to reduce the salaries and allowances of all people serving in connection with the affairs of the State, including High Courts judges.
- The union can assign the state to reserve for the consideration of the President all money and financial Bills, after they are passed by the Legislature of the State.
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