The Indian government plans to reduce states’ share of federal taxes from 41% to 40% starting in 2026-27. This move aims to boost central revenue by ₹35,000 crore yearly to meet rising expenses.
The 16th Finance Commission will review this proposal and decide tax distribution for the next five years. The Centre increasingly relies on cesses and surcharges, which states do not share. As a result, states have demanded a larger tax share. Kerala’s Chief Minister, Pinarayi Vijayan, wants states’ tax devolution raised to 50%.
Cutting states’ tax share could force them to rethink spending plans. It may impact social infrastructure and development projects. As discussions continue, balancing financial responsibilities between the Centre and states remains crucial.
