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Unit 25: Government Finance: Union and States

The Union taxes as laid down in List I, Seventh Schedule of the Constitution of India, are as under : Notes
1. Taxes on income other than agricultural income, 2. Corporation tax, 3. Customs duties, 4. Excise
duties except on alcoholic liquors and narcotics not contained in medical or toilet preparations. 5.
Estate and succession duties other than on agricultural land, 6. Taxes on the capital value of assets,
except agricultural land, of individuals and companies, 7. Rates of stamp duties on financial documents,
8. Taxes other than stamp duties on transactions in stock exchanges and future markets, 9. Taxes on
sale or purchase of newspapers and on advertisements therein, 10. Taxes on railway freight and
fares, 11. Terminal taxes on goods or passengers carried by railways, sea, or air, and 12. Taxes on the
sale or purchase of goods in the course of inter-State trade.
Taxes within the jurisdiction of the States as given in List 11 of the Seventh Schedule of the Constitution
of India are as follows :
1. Land revenue, 2. Taxes on the sale and purchase of goods, except newspapers, 3. Taxes on agricultural
income, 4. Taxes on land and buildings, 5. Succession and estate duties on agricultural land, 6. Excise
on alcoholic liquors and narcotics, 7. Taxes on the entry of goods into a local area, 8. Taxes on mineral
rights, subject to any limitations imposed by Parliament, 9. Taxes on the consumption and sale of
electricity, 10. Taxes on vehicles, animals and boats, 11. Stamp duties except those on financial
documents, 12. Taxes on goods and passengers carried by board or inland waterways, 13. Taxes on
luxuries including entertainments, betting and gambling, 14. Tolls, 15. Taxes on professions, trades,
callings and employment, 16. Capitation Taxes, and 17. Taxes on advertisements other than those
contained in newspapers.
The Union and the State Governments have concurrent powers to fix the principles on which taxes
on motor vehicles shall be levied and to impose stamp duties on non-judicial stamps. The property of
the Union is exempted from State taxation and the property and income of the State are exempted
from Union taxation. The Parliament may, however, pass legislation for taxation by the Union of any
trading or business activities of a State which are not part of the ordinary functions of the Government.
States may delegate part of their taxation power to the Central Government, as had happened in the
base of agricultural land being included in the purview of the Estate Duty Act in many States.
Parliament has exclusive power to tax sales or purchases of goods in the course of inter-State trade.
Distribution and Allocation of Central Revenue
Apart from the taxes levied and collected by the States, the Constitution had provided for the revenues
for certain taxes on the Union list to be allocated, partly or wholly, to the States. These provisions fall
into various categories.
There are, in the first place, certain duties which are levied by the Union but are collected and
appropriated by the States. These include stamp duties and excise duties on medical preparations
containing alcohol or narcotics.
Secondly, there are certain taxes which are levied and collected by the Union, but the entire proceeds
of which are assigned to the States, in proportion determined by the Parliament. These taxes include
succession and estate duties, terminal taxes on goods and passengers, taxes on railway freight and
fares, taxes on transactions in stock exchanges and futures markets, the taxes on the sale and purchase
of newspapers and advertisements therein.
Thirdly, Central tax on income and Union excise duties were levied and collected by the Union but
were shared by it with the States in a prescribed manner.
Finally, the proceeds of additional excise duties on mill-made textiles, sugar and tobacco, which
were levied by the Union in 1957 in replacement of States’ sales taxes on these commodities, are
wholly distributed among the States in a manner as to guarantee their former incomes from the
displaced sales taxes.

Resources Transferred to the States
The importance of Central contributions to State resources becomes clear from Table 1 showing the
transfer in broad categories since the inception of economic planning.

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