In June, the central government devolved Rs 1.39 lakh crore to states as part of its tax revenue. Devolution involves delegating financial resources and decision-making powers from the central government to the states. The Constitution specifies how tax money is divided between the Union government and the states in Article 270.

The finance ministry stated that, in addition to the regular release of the devolution amount for June, an additional instalment was released, totalling Rs. 1,39,750 crore in the current month. This will enable state governments to speed up development and capital spending.

The Interim Budget for FY25 had earmarked Rs 12.19 trillion for tax devolution to states. With this release, the total amount devolved to states for FY25 till 10 June stands at Rs. 2.8 trillion. The Centre devolves 41% of its tax revenue to state governments as part of the formula set by the Finance Commission.

The existing devolution formula, in effect until FY26 is a product of the Fifteenth Finance Commission. This formula is designed to incentivize demographic performance and each state’s effort to mobilize its tax revenue, considering factors such as geographic area, forest cover, and the state’s per capita income.

The Sixteenth Finance Commission, currently chaired by Arvind Panagariya, is actively working on evolving the framework for tax devolution for the period from FY27-31. In its work, the Commission considers the development needs of states, trends like tax buoyancy, and major obligations of the Centre, all of which will inform its recommendation.

The latest round of fund release saw Uttar Pradesh receive Rs 25,069.88 crore, West Bengal receive Rs 10,513.46 crore, Rajasthan receive Rs 8,421.38 crore, and Madhya Pradesh receive Rs 10,970.44 crore.

It’s important to note that the devolution of the Centre’s tax revenue does not include various cesses and surcharges collected by the Union government for specific purposes.