Duties Levied by Union but Collected by States

Duties levied collected under Article 268 describes a distinctive revenue arrangement in the Constitution where the Union government imposes certain duties, but the actual collection is done by the states, which then keep the entire proceeds for themselves. It is one of several devices in Part XII of the Constitution designed to distribute financial resources between the Centre and the states without disturbing the Union's exclusive power to levy the tax in the first place.

Constitutional Basis: Article 268

Article 268(1) provides that stamp duties mentioned in the Union List are levied by the Government of India, but are collected in one of two ways: by the Government of India itself where the duties are leviable within a Union territory, and by the states, in all other cases, where such duties are leviable. Article 268(2) then specifies the crucial financial consequence: the proceeds of any such duty collected within a state, in any financial year, do not form part of the Consolidated Fund of India — instead, they are assigned entirely to that state.

A related category, service tax levied and collected by the Union and the states under the erstwhile Article 268A, was omitted by the Constitution (One Hundred and First Amendment) Act, 2016, once the Goods and Services Tax regime subsumed service tax.

How the Scheme Works

The arrangement under Article 268 has three distinguishing features. First, the power to levy — that is, to impose the duty and fix its rate — rests exclusively with the Union, since these are Union List subjects. Second, the actual work of collecting the duty is carried out by the state machinery in most cases, except within Union territories, where the Union collects it directly. Third, and most importantly, the proceeds collected within a state's territory belong wholly to that state; they never enter the Consolidated Fund of India at all, unlike ordinary Union taxes that are first collected into the Consolidated Fund and only later shared or distributed.

This differs from a straightforward Union tax whose net proceeds might later be shared with states through the Finance Commission's recommendations: under Article 268, there is no sharing formula because the money assigned to a state is never pooled centrally in the first place.

Distinguishing Article 268 from Related Provisions

Article 268 is best understood in contrast with the other revenue-distribution provisions that immediately follow it in Part XII, Chapter I:

The defining feature that sets Article 268 apart is that the states do the actual collecting, and, having collected it, keep the money outright rather than receiving an assigned or distributed share of a centrally pooled amount.

Significance

Article 268 exemplifies how India's constitutional scheme separates the power to legislate/levy a tax from the administrative task of collecting it and the ultimate destination of the proceeds. By letting states collect and retain duties that the Union alone can impose, the provision avoids duplicating tax administration machinery at both levels of government while still ensuring that revenue from certain Union List items strengthens state finances rather than the Union's own Consolidated Fund.

UPSC Relevance

Prelims

• Article 268: stamp duties on the Union List, levied by the Union, collected by states (or by the Union in Union territories); proceeds go entirely to the state.
• Article 268A (service tax, levied/collected by Union and states) was omitted by the 101st Amendment Act, 2016.
• Distinguish from Article 269 (levied AND collected by Union, then assigned to states) and Article 270 (levied and collected by Union, distributed between Union and states).

Mains

• Useful for GS2/GS3 answers on the constitutional architecture of Centre-state fiscal relations and the range of devices — levy-collect-retain, levy-collect-assign, levy-collect-distribute — used to balance Union and state finances.
• Can be cited while discussing how administrative efficiency (avoiding duplicate collection machinery) shaped India's fiscal federalism design.

FAQ

Q1. What does Article 268 provide for? It provides that certain stamp duties mentioned in the Union List are levied by the Union government but collected by the states (or by the Union itself within Union territories).

Q2. Do the proceeds collected under Article 268 go to the Union's Consolidated Fund? No. Article 268(2) specifies that such proceeds do not form part of the Consolidated Fund of India; they are assigned entirely to the state that collected them.

Q3. Who collects these duties within a Union territory? The Government of India itself collects them within Union territories, unlike within states, where the state government collects them.

Q4. How is Article 268 different from Article 269? Under Article 268, the Union levies but the states collect, and proceeds go entirely to the collecting state. Under Article 269, the Union both levies and collects the tax, and the net proceeds are then assigned to states as per principles formulated by Parliament.

Q5. What happened to Article 268A? Article 268A, which dealt with service tax levied by the Union and collected and appropriated by the Union and the states, was omitted by the Constitution (One Hundred and First Amendment) Act, 2016, following the introduction of GST.

Quick Revision

• Article 268: stamp duties (Union List) levied by Union, collected by states (Union collects in Union territories).
• Proceeds collected within a state go entirely to that state — never enter the Consolidated Fund of India.
• Contrast with Article 269 (Union levies+collects, then assigns) and Article 270 (Union levies+collects, distributed).
• Article 268A (service tax) omitted by the 101st Amendment Act, 2016.
• Part of Part XII, Chapter I's "Distribution of Revenues between the Union and the States" scheme (Articles 268-281).

Sources

• Constitution of India, Article 268 — legislative.gov.in
• Constitution (One Hundred and First Amendment) Act, 2016 — legislative.gov.in

Further Reference

For deeper reading on this topic and the wider polity syllabus, these standard works are recommended:

• Indian Polity — a standard UPSC handbook.
• Introduction to the Constitution of India — authoritative constitutional-law treatment.
• The Constitution of India — Bare Act — the official text.