CORE Key Points at a Glance

  1. 1

    Fiscal federalism in India rests on Article 265, Article 270, Article 275 and Article 280 rather than on one Finance Commission formula alone.

  2. 2

    The 13th, 14th, 15th and 16th Finance Commissions mark a vertical-devolution chain of 32 percent, 42 percent, 41 percent and a fresh 2026-31 award frame.

  3. 3

    The 15th Finance Commission retained 41 percent for 2021-26 and used income distance, 2011 population, area, forest and ecology, demographic performance and tax effort.

  4. 4

    The GST Council under Article 279A is a joint Union-State institution with weighted voting, consensus practice and direct rate-setting effects.

  5. 5

    The 55th GST Council meeting at Jaisalmer on 21 December 2024 gives the topic a direct Rajasthan current-affairs hook.

  6. 6

    FRBM and Union Budget deficit targets connect Centre-State transfers with macro stability, debt, borrowing and the cost of public programmes.

  7. 7

    GST Compensation Cess shows how tax reform can create a temporary revenue guarantee for states and a later loan-repayment issue.

  8. 8

    Raghuram Rajan Committee and CSS rationalisation show the equity-versus-flexibility side of intergovernmental transfers.

CORE Constitutional Frame of Fiscal Federalism

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.

PREDICTED Predicted RAS Questions

Based on PYQ trends and 2026 syllabus analysis

1 1M A constitutional body is constituted by the President every fifth year to recommend tax devolution and grants-in-aid. Which article provides this framework? 1 marks · 0 words

Model Answer

Article 280 provides the Finance Commission framework and requires constitution by the President every fifth year or earlier. Article 265 gives legality for taxation, Article 270 concerns the divisible pool, and Article 275 concerns grants-in-aid.

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