Mutual Tax Immunity Between Union and States
Mutual tax immunity under Article 285 exempts Union property from state taxation, and a parallel Article 289 exempts state property and income from Union tax.
At a glance
The rule that Union and state property/income are, by default, exempt from taxation by the other level of government.
Article 285 exempts Union property from state tax; Article 289 reciprocally exempts state property/income from Union tax.
Prevents duplicated, circular cross-taxation between the Union and states under India's federal 'double government.'
Mutual tax immunity is the constitutional principle that neither the Union nor a state may ordinarily tax the property of the other, so that the two levels of government are not drawn into taxing each other's assets. Article 285 lays down the Union side of this immunity, while a parallel provision, Article 289, covers the reverse — state property and income against Union taxation.
Article 285: Union Property Exempt from State Tax
Article 285(1) provides that the property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a state or by any authority within a state. The immunity is thus the default rule, but it is not absolute — Parliament retains the power to legislate an exception and allow state taxation of Union property if it chooses to.
Article 285(2) is a transitional saving clause: until Parliament otherwise provides, it does not prevent an authority within a state from continuing to levy a tax on Union property to which that property was already liable, or treated as liable, immediately before the Constitution commenced — so long as that tax continues to be levied in that state. This preserved pre-existing local tax arrangements rather than wiping them out overnight at the Constitution's commencement.
The Reciprocal Rule: Article 289
Just as Union property is immune from state taxation under Article 285, the property and income of a state are, by a corresponding rule, exempt from Union taxation. This reciprocity is what makes the immunity "mutual" rather than one-sided — each level of government is shielded from the other's power to tax.
Limits on the Immunity
The immunity is not unlimited in scope. It has been clarified that this protection does not extend to every tax the Union or a state might impose — it is confined to taxes levied specifically on property. A tax such as customs duty, for instance, is not a tax on property at all; it is levied on the act of importing or exporting goods, so mutual tax immunity does not shield a government's goods from customs duty merely because of who owns them.
On the state side, the exemption covers both the property and the income of the state government itself, but this protection does not extend to local authorities situated within the state — a municipality or similar body is not covered by the state's immunity from Union taxation.
Why Mutual Tax Immunity Exists
Under a federal Constitution with a "double government" — one Union and multiple state governments functioning side by side — allowing each level to tax the other's property would generate a great deal of duplicated assessment, calculation and cross-accounting between the two governments for no real fiscal gain. Mutual tax immunity avoids this circularity, letting each government's property and income stay outside the other's tax net as a default administrative and constitutional principle.
| Aspect | Article 285 (Union → State) | Article 289 (State → Union) |
|---|---|---|
| What is exempt | Union property from state/local tax | State property and income from Union tax |
| Can Parliament override | Yes, by law | Governed by its own separate conditions under Article 289 |
| Scope of immunity | Confined to taxes on property (not, e.g., customs duty) | Confined to the state government itself, not local authorities within it |
| Transitional clause | Article 285(2) preserves pre-Constitution local taxes on Union property until Parliament legislates otherwise | — |
UPSC Relevance
Prelims
- Article 285: Union property exempt from state taxation, subject to Parliament's power to provide otherwise.
- Article 285(2) is a transitional saving clause for pre-existing local taxes on Union property.
- Article 289 is the reciprocal provision exempting state property and income from Union taxation.
- The immunity applies only to taxes on property, not to levies like customs duty on the act of import/export.
Mains
- Mutual tax immunity under Articles 285 and 289 reflects a structural feature of Indian federalism: avoiding a fiscally circular and administratively wasteful cross-taxation between the Union and the states.
- The confinement of the immunity to "property" taxes, and its non-extension to local authorities on the state side, shows how the doctrine is carefully bounded rather than a blanket shield against all taxation.
FAQ
Q1. What does Article 285 protect? It exempts the property of the Union from all taxes imposed by a state or any authority within a state, unless Parliament by law provides otherwise.
Q2. Is the Union's tax immunity absolute? No. Parliament can, by law, permit state taxation of Union property; and Article 285(2) preserves certain pre-Constitution local taxes until Parliament legislates otherwise.
Q3. Is there a reciprocal immunity for states? Yes, under Article 289, which exempts state property and income from Union taxation.
Q4. Does mutual tax immunity cover taxes like customs duty? No. The immunity is confined to taxes on property; customs duty is levied on the act of import or export, not on property, so it falls outside this immunity.
Q5. Does a state's tax immunity extend to its local authorities? No. The state's immunity from Union taxation covers the state government's own property and income, not local authorities such as municipalities within the state.
Quick Revision
- Article 285: Union property exempt from state taxation (subject to Parliament providing otherwise).
- Article 285(2): transitional clause preserving certain pre-Constitution local taxes.
- Article 289: reciprocal exemption of state property/income from Union taxation.
- Immunity is limited to taxes on property, not, e.g., customs duty.
- State immunity does not extend to local authorities within the state.
- Rationale: avoids duplicated cross-taxation between Union and states.
Sources
Further Reference
For deeper reading on this topic and the wider polity syllabus, these standard works are recommended:
- M. Laxmikanth, Indian Polity (McGraw Hill) — the standard UPSC handbook.
- D.D. Basu, Introduction to the Constitution of India (LexisNexis) — authoritative constitutional-law treatment.
- The Constitution of India — Bare Act — the official text.
Constitutional provisions
Exemption of Union property from state taxation, subject to Parliament providing otherwise; transitional saving clause in 285(2).
Reciprocal exemption of state property and income from Union taxation.