3 minConstitutional Provision
Constitutional Provision

Article 270

What is Article 270?

Article 270 of the Indian Constitution deals with the distribution of net tax proceeds between the Union (Central government) and the States. It ensures that taxes collected by the Union are shared with the States, promoting fiscal federalism. This article allows for the sharing of taxes like income tax, corporation tax, Central Goods and Services Tax (CGST), and Integrated Goods and Services Tax (IGST). The exact proportion of tax sharing is determined by the Finance Commission, a constitutional body constituted every five years. The purpose is to reduce financial imbalances between richer and poorer states, enabling all states to provide essential services. This sharing is known as vertical devolution. Article 270 is crucial for maintaining cooperative federalism in India.

Historical Background

Before the Constitution, tax sharing was ad-hoc and based on the Government of India Act, 1935. The framers of the Constitution recognized the need for a more structured and equitable system. Article 270 was included in the Constitution in 1950 to address this. Initially, only income tax was compulsorily shared. Over time, the scope of divisible taxes has expanded. The recommendations of successive Finance Commissions have shaped the evolution of tax sharing. The introduction of Goods and Services Tax (GST) in 2017 significantly impacted the tax revenue distribution mechanism. The article has been amended several times to reflect changing economic realities and the evolving relationship between the Centre and the States. The core principle of equitable distribution, however, has remained constant.

Key Points

12 points
  • 1.

    Article 270(1) states that taxes referred to in the Union List, except those assigned to the States, shall be levied and collected by the Government of India.

  • 2.

    Article 270(2) provides for the distribution of net tax proceeds between the Union and the States as prescribed by the Finance Commission.

  • 3.

    The Finance Commission recommends the percentage of taxes to be devolved to the States (vertical devolution) and the criteria for distributing this share among the States (horizontal devolution).

  • 4.

    The divisible pool of taxes includes corporation tax, personal income tax, CGST, and IGST. Divisible pool means the taxes that are shared between the Union and the States.

  • 5.

    The percentage of net tax proceeds to be assigned to States has varied over time, based on the recommendations of different Finance Commissions. For example, the 15th Finance Commission recommended 41%.

  • 6.

    The criteria for horizontal devolution typically include factors like population, area, income distance, demographic performance, tax effort, and fiscal discipline.

  • 7.

    Cesses and surcharges levied by the Union are generally not part of the divisible pool, unless specifically recommended by the Finance Commission.

  • 8.

    The President of India constitutes the Finance Commission every five years or earlier, as deemed necessary.

  • 9.

    The recommendations of the Finance Commission are generally accepted by the government, but they are not binding.

  • 10.

    Article 270 ensures that States have adequate resources to fulfill their constitutional responsibilities, promoting balanced regional development.

  • 11.

    The implementation of GST has necessitated changes in the way taxes are shared, with IGST being a key component of the divisible pool.

  • 12.

    The article is closely linked to other articles in Part XII of the Constitution, which deals with finance, property, contracts, and suits.

Visual Insights

Comparison of Article 270 with related Articles

Comparison of Article 270 with Articles 268, 269, and 279A of the Constitution.

ArticleSubject MatterKey Features
Article 268Duties levied by the Union but collected and appropriated by the StatesDeals with duties like stamp duties and excise duties on medicinal and toilet preparations. Revenue goes entirely to the States.
Article 269Taxes levied and collected by the Union but assigned to the StatesDeals with taxes like taxes on the sale or purchase of goods in the course of inter-State trade or commerce. Revenue is assigned to the States.
Article 270Taxes levied and collected by the Union and distributed between the Union and the StatesDeals with taxes like income tax, corporation tax, CGST, and IGST. Revenue is shared between the Union and the States as per the Finance Commission's recommendations.
Article 279AGoods and Services Tax CouncilDeals with the constitution and functions of the GST Council, which makes recommendations on GST-related matters.

Recent Developments

7 developments
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The 15th Finance Commission submitted its report for the period 2021-26, recommending a vertical devolution of 41% of the divisible pool to the States.

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The 16th Finance Commission, chaired by Dr. Arvind Panagariya, has submitted its report for the period 2026-31.

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Debates continue regarding the inclusion of cesses and surcharges in the divisible pool, with States arguing for a larger share of revenue.

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Discussions are ongoing about the criteria for horizontal devolution, particularly concerning the weightage given to factors like population and income distance.

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The impact of GST on State finances and the need for compensation mechanisms remain key areas of focus.

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The Union government is encouraging States to improve their fiscal management and reduce reliance on central transfers.

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The Finance Commission is also looking at ways to incentivize States to promote sustainable development and address climate change.

This Concept in News

1 topics

16th Finance Commission Report: States' Share and Key Recommendations

12 Feb 2026

The 16th Finance Commission's report highlights the practical application of Article 270 in shaping Centre-State financial relations. The addition of a new criterion, State's contribution to GDP, for horizontal devolution demonstrates an attempt to balance equity and efficiency. This news event applies Article 270 by putting into action the recommendations for tax sharing. It reveals the ongoing debate about the optimal criteria for devolution and the need to address regional disparities. The implications of this news are significant, as it will affect the financial resources available to States and their ability to fund development programs. Understanding Article 270 is crucial for analyzing the impact of the Finance Commission's recommendations on State finances and the overall economic development of the country. It allows for a deeper understanding of the complexities of fiscal federalism and the challenges of balancing the needs of the Centre and the States.

Source Topic

16th Finance Commission Report: States' Share and Key Recommendations

Polity & Governance

UPSC Relevance

Article 270 is highly relevant for the UPSC exam, particularly for GS Paper II (Polity and Governance) and GS Paper III (Economy). Questions related to fiscal federalism, Centre-State financial relations, and the role of the Finance Commission are frequently asked. In Prelims, factual questions about the provisions of the article and the recommendations of recent Finance Commissions are common. In Mains, analytical questions about the challenges of fiscal devolution, the impact of GST, and the need for reforms in Centre-State financial relations are often asked. Essay topics related to federalism and economic development can also draw upon this knowledge. Recent years have seen an increased focus on cooperative federalism and the role of States in achieving national development goals. Understanding this article is crucial for answering questions related to fiscal policy and governance.

Comparison of Article 270 with related Articles

Comparison of Article 270 with Articles 268, 269, and 279A of the Constitution.

Comparison of Articles

ArticleSubject MatterKey Features
Article 268Duties levied by the Union but collected and appropriated by the StatesDeals with duties like stamp duties and excise duties on medicinal and toilet preparations. Revenue goes entirely to the States.
Article 269Taxes levied and collected by the Union but assigned to the StatesDeals with taxes like taxes on the sale or purchase of goods in the course of inter-State trade or commerce. Revenue is assigned to the States.
Article 270Taxes levied and collected by the Union and distributed between the Union and the StatesDeals with taxes like income tax, corporation tax, CGST, and IGST. Revenue is shared between the Union and the States as per the Finance Commission's recommendations.
Article 279AGoods and Services Tax CouncilDeals with the constitution and functions of the GST Council, which makes recommendations on GST-related matters.

💡 Highlighted: Row 3 is particularly important for exam preparation

This Concept in News

1 news topics

1

16th Finance Commission Report: States' Share and Key Recommendations

12 February 2026

The 16th Finance Commission's report highlights the practical application of Article 270 in shaping Centre-State financial relations. The addition of a new criterion, State's contribution to GDP, for horizontal devolution demonstrates an attempt to balance equity and efficiency. This news event applies Article 270 by putting into action the recommendations for tax sharing. It reveals the ongoing debate about the optimal criteria for devolution and the need to address regional disparities. The implications of this news are significant, as it will affect the financial resources available to States and their ability to fund development programs. Understanding Article 270 is crucial for analyzing the impact of the Finance Commission's recommendations on State finances and the overall economic development of the country. It allows for a deeper understanding of the complexities of fiscal federalism and the challenges of balancing the needs of the Centre and the States.