Center pays ₹1.09 trillion tax to states amid festival season spending

NEW DELHI: The Union government on Thursday issued ₹1.09 trillion to the states as their share of central taxes, bringing forward the monthly transfer by five days to help them meet their festival season spending requirements and accelerate capital expenditure, the finance ministry said in a statement.

The transfer follows another release of the same amount on October 31, over and above the regular monthly transfer. The October 31 payment was the second additional installment in the current financial year, following an identical one on August 1. The additional transfers are aimed at strengthening state finances and allow governments to accelerate capital spending and finance development and social security-related spending, the finance ministry said.

The timing of the move coincides with an expanded festival calendar that began with the nine-day Navratri celebrations on October 11 and continued through Dussehra on October 20. Diwali falls on November 8, followed by Bhai Dooj and the four-day Chhath Puja celebrations starting on November 13. Guru Nanak Jayanti and Christmas on December 25 also fall in this period.

Uttar Pradesh received the largest share of the last installment on ₹19,208 crore, followed by Bihar at ₹10,845 crore and Madhya Pradesh at ₹8,010 million crowns. West Bengal received ₹7,866 crore, Maharashtra ₹7,022 crore and Rajasthan ₹6,460 crores.

It received Odisha among other states ₹4,819 crore, Andhra Pradesh ₹4,597 crore, Karnataka ₹4,504 crore, Tamil Nadu ₹4,466 crore and Gujarat ₹4,094 million crowns. Chhattisgarh and Jharkhand received ₹3,602 million and ₹3,660 crore, respectively, while Assam was allocated ₹3,552 crore, according to ministry data.

Tax decentralization is a key source of revenue for states and provides them with the means to finance their spending priorities.

Devolution will rise

As per the recommendations of the 16th Finance Commission, accepted by the Center in the Union Budget for this fiscal year, states will get 41% of the divisible pool of central taxes during the five-year period from fiscal year 2027 (FY27) to FY31. The divisible pool includes central tax revenue after excluding cesses, surcharges and collection costs.

The Union Budget estimates the transfer of taxes to the states in the amount of ₹15.26 trillion in FY27, up from ₹13.93 trillion in revised estimates for FY26. The center also provided ₹1.4 trillion in Finance Commission grants for the current financial year, including grants to rural and urban local bodies and disaster management.

Together, we are expected to devolve the finance commission’s taxation powers and grants ₹16.56 trillion to states in FY27 through the Finance Commission.

However, the centre’s monthly accounts show a slower pace of tax transfers in the early months of the financial year. In August, the states received ₹5.90 trillion as their share of central taxes, ₹60,243 crore less than the same period last year, according to the monthly review of Union government accounts by the finance ministry.

“The latest version will provide states with additional liquidity ahead of the festive season and help them manage spending without waiting for the originally scheduled payment date,” said Dharmveer, assistant professor of economics at the Delhi School of Economics.