249. Fiscal Federalism and Finance Commission

Fiscal federalism is the rule-set through which the Union, States and local bodies raise revenue, share taxes and finance public services. Article 265 — Taxes not to be imposed save by authority of law — fixes the first boundary: neither the Union nor a State can levy or collect a tax without legal authority. Article 270 — Distribution of net proceeds of Union taxes — creates the divisible-pool idea by distributing specified Union taxes between the Union and the States, while cesses and surcharges remain outside that pool under the Constitution. Article 275 — Grants-in-aid from Union to States — covers statutory grants charged on the Consolidated Fund of India for states needing assistance. Article 280 — Finance Commission — then connects these clauses: the President constitutes a Finance Commission every fifth year or earlier, with a Chairperson and four members, to recommend vertical devolution, horizontal shares, grants-in-aid and measures to augment State funds for Panchayats and Municipalities. Rajasthan appears in this frame at two levels: as a State receiving tax devolution and grants, and through its Panchayats and urban local bodies whose resources are linked to Finance Commission recommendations after the 73rd and 74th Amendments. The structure matters because a budget number is not automatically federal money. A tax first needs authority of law, then enters or stays outside the divisible pool, then becomes a Finance Commission recommendation or a grant. This is why a rupee collected as income tax, a rupee collected as GST, a rupee collected as compensation cess and a rupee given as a local-body grant travel through different constitutional channels before reaching a Rajasthan district or municipality. This layered structure also prevents a common confusion: a tax collected by the Union does not automatically become a shareable transfer, and a central announcement does not automatically create state-level spending authority.