The financial relations between the Union Government and the States are discussed in Article 268 to 281 of the Constitution of India. In a Federation, the Centre and the units are given their separate sources of revenues so that they can stand on their feet. We can see in the following paras the financial relations between the Government of India and the States:
 
(i) Duties levied by the Union but collected and appropriated by the States
 
(a) Article 268 of the Constitution lays down that the stamp duties and such duties of excise on medicinal and toilet preparations as are mentioned in the Union List shall be levied by the Government of India but shall be collected by the States.
 
(b) The proceeds in any financial year of any such duty leviable within any State shall not form part of the Consolidated Fund of India, but shall be assigned to that State.
 
(ii) Taxes levied and collected by the Union but assigned to the States
 
The following duties and taxes shall be levied and collected by the Government of India but shall be assigned to the States in accordance with such principles of distribution as may be formulated by Parliament by law.
 
(a) Duties in respect of succession to property other than agricultural land.
(b) Estate duty in respect to property other than agricultural land.
(c) Terminal taxes on goods or passengers carried by railway, sea or air.
(d) Taxes on railway fares and freights.
(e) Taxes other than stamp duties on transactions in stock exchanges and future markets.
(f) Taxes on the sale or purchase of newspapers and on advertisements published therein.
(g) Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.
 
(iii) Taxes levied and collected by the Union and distributed between the Union and the States
 
Article 270 says that taxes on incomes, other than agricultural incomes, shall be levied and collected by the Government of India and distributed between the Union and the States in the manner prescribed by the President after considering the recommendations of the Finance Commission.
 
(iv) Taxes which are levied and collected by the Union and may be distributed between the Union and Stales .

Under Article 272, Union duties of excise other than such duties of excise on medicinal and toilet preparations as are mentioned in the Union List shall be levied and collected by the Government of India, but, if Parliament by law So provides, these shall be paid out of the Consolidated Fund of India to the States in accordance with such principles of distribution as may be formulated by such law.
 
(v) Grants in lieu of export duty on Jute and Jute Products
 
Under Article 273 the States of Assam, Bihar, Orissa and West Bengal will get grant in-aid every year in lieu of assignment of share of the net proceeds of export duty on jute and jute products. This amount will be charged upon the Consolidated Fund of India. This sum will continue to be charged on the Consolidated Fund of India so long as any export duty on the jute products continues to be levied by the Government of India.
 
(vi) Grants from the Union to certain States
 
(a) Under Article 275 of the Constitution, such sums as the Parliament may by law provide shall be charged on the Consolidated Fund of India in each year as grants-in-aid to the revenues of such States as Parliament may determine to be in need of assistance and different sums may be fixed for different States.
(b) It has also been provided that these sums shall be paid out of Consolidated Fund of India as grants-in-aid to the States to meet the costs of such schemes of development as may be under-taken for the purpose of promoting the welfare of the Scheduled Tribes in the State or raising the level of administration of the Scheduled Areas therein to that of the administration of the rest of the areas of that State.
(c) The Slate of Assam will be given a special grant in-aid for raising the level of administration of tribal areas to that of the administration of the rest of the areas of that State.
 
Under the 89th Constitution Amendment Bill, the States will get 29% of Central taxes as per the recommendations of the 10th Finance Commission.

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