In this part 'Finance Commission' means a Finance Commission constituted under article 280.
No tax shall be levied or collected except by authority of law.
This article imposes a restriction on the executive power of the States or the Union because law here means law made by the legislature. Tax cannot be levied or collected by mere executive action. There is another implied limitation that law providing for taxation must be a valid law. It means that it should be within the legislative competence of the legislature which enacts such a law and further, it should not violate other provisions of the Constitution.
(1) Subject to the provisions of article 267 and to the provisions of this Chapter with respect to the assignment of the whole or part of the net proceeds of certain taxes and duties to States, all revenues received by the Government of India, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled "the Consolidated Fund of India", and all revenues received by the Government of a State, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled "the Consolidated Fund of the State".
(2) All other public moneys received by or on behalf of the Government of India or the Government of a State shall be credited to the public account of India or the public account of the State, as the case may be.
(3) No moneys out of the Consolidated Fund of India or the Consolidated Fund of a State shall be appropriated except in accordance with law and for the purposes and in the manner provided in this Constitution.
This article makes provision for the consolidated funds of India and the States. It is laid down that all revenues received by the Government of India, all monies raised by loans and all money received in repayment of loans shall form one consolidated fund and will be called the consolidated fund of India. But such taxes as one assigned to the states do not form part of the consolidated fund of India.
No money out of the consolidated fund of India or a State shall be appropriated, except in accordance with law and for the purposes and in the manner provided in the Constitution.
All other public monies received by or on behalf of the Government of India or Government of a State shall be credited to the Public Account of India or Public Account of the State, for example. Article 284 enacts that all monies received by or deposited with any Union officer, other than revenues or public monies raised or received by the Government of India, or deposited with any court in India to the credit of any cause, matter, account or person shall be paid into the Public Account of India or of a State, as the case may be.
(1) Parliament may by law establish a Contingency Fund in the nature of an imprest to be entitled "the Contingency Fund of India" into which shall be paid from time to time such sums as may be determined by such law, and the said Fund shall be placed at the disposal of the President to enable advances to be made by him out of such Fund for the purposes of meeting unforeseen expenditure pending authorisation of such expenditure by Parliament by law under article 115 or article 116.
(2) The Legislature of a State may by law establish a Contingency Fund in the nature of an imprest to be entitled "the Contingency Fund of the State" into which shall be paid from time to time such sums as may be determined by such law, and the said Fund shall be placed at the disposal of the Governor of the State to enable advances to be made by him out of such Fund for the purposes of meeting unforeseen expenditure pending authorisation of such expenditure by the Legislature of the State by law under article 205 or article 206.
Article 267 provides for establishment of a contingency fund of India and also for each State in the nature of an imprest to meet unforeseen expenditures.
The contingency fund of India is to be established by an Act of Parliament and contingency fund of a State by an Act of Legislature of that State. Money to be credited from time-to-time to contingency fund shall be determined by such Act.
Contingency fund of India shall be placed at the disposal of the President of India and contingency fund of State shall be placed at the disposal of the Governor of that State to meet conferee expenditure pending formal authorisation by Parliament under articles 115 and 116 and in case of the State Legislature under articles 205 and 206.
(1) Such 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-
(a) in the case where such duties are leviable within any Union territory, by the Government of India, and
(b) in other cases, by the States within which such duties are respectively leviable.
(2) 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.
(1) Taxes on services shall be levied by the Government of India and such tax shall be collected and appropriated by the Government of India and the States in the manner provided in clause (2).
(2) The proceeds in any financial year of any such tax levied in accordance with the provisions of clause (1) shall be-
(a) collected by the Government of India and the States;
(b) appropriated by the Government of India and the States,
in accordance with such principles of collection and appropriation as may be formulated by Parliament by law.
(1) Taxes on the sales or purchase of goods and taxes on the consignment of goods shall be levied and collected by the Government of India but shall be assigned and shall be deemed to have been assigned to the States on or after the 1st day of April, 1996 in the matter provided in clause (2).
Explanation.-For the purposes of this clause,-
(a) the expression "taxes on the sale or purchase of goods" shall mean taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce;
(b) the expression "taxes on the consignment of goods" shall mean taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce.
(2) The net proceeds in any financial year of any such tax, except in so far as those proceeds represent proceeds attributable to Union territories, shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax is leviable in that year, and shall be distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law.
(3) Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods takes place in the course of inter-State trade or commerce.
(1) All taxes and duties referred to in the Union List, except the duties and taxes referred to in articles 268, 268A and 269, respectively, surcharge on taxes and duties referred to in article 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the Government of India and shall be distributed between the Union and the States in the manner provided in clause (2).
(2) Such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial year shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax or duty is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed in the manner provided in clause (3).
(3) In this article, "prescribed" means,-
(i) until a Finance Commission has been constituted, prescribed by the President by order, and
(ii) after a Finance Commission has been constituted, prescribed by the President by order after considering the recommendations of the Finance Commission.
Notwithstanding anything in articles 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those articles by a surcharge for purposes of the Union and the whole proceeds of any such surcharge shall form part of the Consolidated Fund of India.
[Rep. by the Constitution (Eightieth Amendment) Act, 2000, sec. 4 (w.e.f. 9-6-2000).]
(1) There shall be charged on the Consolidated Fund of India in each year as grants-in-aid of the revenues of the States of Assam, Bihar, Orissa and West Bengal, in lieu of assignment of any share of the net proceeds in each year of export duty on jute and jute products to those States, such sums as may be prescribed.
(2) The sums so prescribed shall continue to be charged on the Consolidated Fund of India so long as any export duty on jute or jute products continues to be levied by the Government of India or until the expiration of ten years from the commencement of this Constitution, whichever is earlier.
(3) In this article, the expression "prescribed" has the same meaning as in article 270.
(1) No Bill or amendment which imposes or varies any tax or duty in which States are interested, or which varies the meaning of the expression "agricultural income" as defined for the purposes of the enactments relating to Indian Income-tax, or which affects the principles on which under any of the foregoing provisions of this Chapter moneys are or may be distributable to State, or which imposes any surcharge for the purposes of the Union as is mentioned in the foregoing provisions of this Chapter, shall be introduced or moved in either House of Parliament except on the recommendation of the President.
(2) In this article, the expression "tax or duty in which States are interested" means-
(a) a tax or duty the whole or part of the net proceeds whereof are assigned to any State; or
(b) a tax or duty by reference to the net proceeds whereof sums are for the time being payable out of the Consolidated Fund of India to any State.
(1) Such sums as Parliament may by law provide shall be charged on the Consolidated Fund of India in each year as grants-in-aid of the revenues of such States as Parliament may determine to be in need of assistance, and different sums may be fixed for different States:
Provided that there shall be paid out of the Consolidated Fund of India as grants-in-aid of the revenues of a State such capital and recurring sums as may be necessary to enable that State to meet the costs of such schemes of development as may be undertaken by the State with the approval of the Government of India for the purpose of promoting the welfare of the Scheduled Tribes in that 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:
Provided further that there shall be paid out of the Consolidated Fund of India as grants-in-aid of the revenues of the State of Assam sums, capital and recurring, equivalent to-
(a) the average excess of expenditure over the revenues during the two years immediately preceding the commencement of this Constitution in respect of the administration of the tribal areas specified in Part I of the table appended to paragraph 20 of the Sixth Schedule; and
(b) the costs of such schemes of development as may be undertaken by that State with the approval of the Government of India for the purpose of raising the level of administration of the said areas to that of the administration of the rest of the areas of that State.
(1A) On and from the formation of the autonomous State under article 244A,-
(i) any sums payable under clause (a) of the second proviso to clause (1) shall, if the autonomous State comprises of all the tribal areas referred to therein, be paid to the autonomous State, and, if the autonomous State comprises only some of those tribal areas, be apportioned between the State of Assam and the autonomous State as the President may, by order, specify;
(ii) there shall be paid out of the Consolidated Fund of India as grants-in-aid of the revenues of the autonomous State sums, capital and recurring, equivalent to the costs of such schemes of development as may be undertaken by the autonomous State with the approval of the Government of India for the purpose of raising the level of administration of that State to that of the administration of the rest of the State of Assam.
(2) Until provision is made by Parliament under clause (1), the powers conferred on Parliament under that clause shall be exercisable by the President by order and any order made by the President under this clause shall have effect subject to any provision so made by Parliament:
Provided that after a Finance Commission has been constituted no order shall be made under this clause by the President except after considering the recommendations of the Finance Commission.
(1) Notwithstanding anything in article 246, no law of the Legislature of a State relating to taxes for the benefit of the State or of a municipality, district board, local board or other local authority therein in respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income.
(2) The total amount payable in respect of any one person to the State or to any one municipality, district board, local board or other local authority in the State by way of taxes on professions, trades, callings and employments shall not exceed two thousand and five hundred rupees per annum.
(3) The power of the Legislature of a State to make laws as aforesaid with respect to taxes on professions, trades, callings and employments shall not be construed as limiting in any way the power of Parliament to make laws with respect to taxes on income accruing from or arising out of professions, trades, callings and employments.
Any taxes, duties, cesses or fees which, immediately before the commencement of this Constitution, were being lawfully levied by the Government of any State or by any municipality or other local authority or body for the purposes of the State, municipality, district or other local area may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law.
[Rep. by the Constitution (Seventh Amendment) Act, 1956, sec. 29 and Sch. (w.e.f. 1-11-1956).]
(1) In the foregoing provisions of this Chapter, "net proceeds" means in relation to any tax or duty the proceeds thereof reduced by the cost of collection, and for the purposes of those provisions the net proceeds of any tax or duty, or of any part of any tax or duty, in or attributable to any area shall be ascertained and certified by the Comptroller and Auditor-General of India, whose certificate shall be final.
(2) Subject as aforesaid, and to any other express provision of this Chapter, a law made by Parliament or an order of the President may, in any case where under this Part the proceeds of any duty or tax are, or may be, assigned to any State, provide for the manner in which the proceeds are to be calculated, for the time from or at which and the manner in which any payments are to be made, for the making of adjustments between one financial year and another, and for any other incidental or ancillary matters.
(1) The President shall, within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary, by order constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President.
(2) Parliament may by law determine the qualifications which shall be requisite for appointment as members of the Commission and the manner in which they shall be selected.
(3) It shall be the duty of the Commission to make recommendations to the President as to-
(a) the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds;
(b) the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;
(bb) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State;
(c) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;
(d) any other matter referred to the Commission by the President in the interests of sound finance.
(4) The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them.
The Finance Commission envisaged by the Indian Constitution is a unique body. It is an expert body of non-political character. The commission is an advisory body and its recommendations are not binding on the Central Government. The Finance Commission (Miscellaneous Provisions) Act, 1951 has been exacted by Parliament. The Chairman of the Finance Commission is to be a person having experience in public affairs. Its other four members are to be selected from among persons qualified to be appointed as the High Court Judges, having special knowledge of government finances and account, having wide experience in financial matters and administration, or having special knowledge of economics.
A person is disqualified to be appointed as a member of the commission if he is of unsound mind, is an undercharged insolvent, has been convicted of an offence involving moral turpitude or has financial or other interests prejudicially affecting his functions as a member of the commission.
The functions of the Commission as prescribed by article 280(3) are to make recommendations to the President with regard to the following matters-
(a) The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation of the representative shares of such proceeds.
(b) The principle to govern the grants-in-aid of the revenue of the States out of the consolidated fund of India.
(c) The measures needed to augment the State consolidated fund to supplement the resources of the panchayats, in the State on the basis of the recommendation made by the State Finance Commission.
(d) The measures needed to augment the State consolidated fund to supplement the resources of the municipalities in the State on the basis of the recommendations made by the State Finance Commission.
(e) Any other matter referred to it by the President in the interest of sound finance.
"The President shall cause every recommendation made by the Finance Commission under the provisions of this Constitution together with an explanatory memorandum as to the action taken thereon to be laid before each House of Parliament.
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