Taxes Levied and Distributed Between Union and States

Taxes distributed between the Union and states under Article 270 of the Constitution form the core of India's shared, or "divisible," tax pool — the mechanism by which most Union List taxation is levied and collected by the Government of India but a prescribed share of the net proceeds is passed on to the states. This is the single largest channel through which Union tax revenue reaches state governments.

What Article 270 Covers

Article 270(1) sweeps in all taxes and duties referred to in the Union List, with specific exclusions: the duties and taxes referred to in Articles 268, 269 and 269A, any surcharge on taxes and duties referred to in Article 271, and any cess levied for a specific purpose under a law made by Parliament. Everything else in this category is levied and collected by the Government of India and distributed between the Union and the states in the manner set out in clause (2). Two clauses added by the Constitution (One Hundred and First Amendment) Act, 2016 — clauses (1A) and (1B) — extend this same distribution mechanism to GST collections: tax collected by the Union under Article 246A(1), and amounts arising from cross-utilisation between Union GST and the IGST apportioned to the Union under Article 269A(1), are also distributed under clause (2).

Why Cesses Fall Outside the Divisible Pool

The exclusion of "any cess levied for specific purposes under any law made by Parliament" from Article 270(1) is a deliberate design feature, not an oversight. Because a cess is carved out of the divisible pool by the text of Article 270 itself, its proceeds are not distributed to states in the way ordinary Union List taxes and duties are — they remain earmarked for the purpose Parliament specifies when levying the cess. This distinction between shareable taxes and non-shareable cesses is a recurring point of Centre-state fiscal debate, since a rising share of Union revenue collected as cess correspondingly shrinks what states can claim from the article 270 pool.

How the Distribution Is Fixed

Article 270(2) provides that such percentage of the net proceeds of these taxes as may be prescribed shall not form part of the Consolidated Fund of India, but shall instead be assigned to the states within which the tax or duty is leviable, distributed in the manner and from the time prescribed. Article 270(3) defines "prescribed" for this purpose: until a Finance Commission has been constituted, it means prescribed by the President by order; after a Finance Commission has been constituted, it means prescribed by the President by order, but only after considering that Commission's recommendations. This is the constitutional hook connecting Article 270 to Article 280, under which the President constitutes a Finance Commission at the end of every fifth year (or earlier) to recommend, among other things, how the net proceeds of taxes should be distributed between the Union and the states, and how the states' share should be allocated among themselves. Article 279 separately defines "net proceeds" as the proceeds of a tax or duty reduced by the cost of collection, with the Comptroller and Auditor-General's certificate on the figure being final.

Article 270 Compared with Its Neighbouring Provisions

Article	Nature of proceeds	Share to states
269	Union-collected inter-State sale/consignment taxes	100%, assigned entirely to states
269A	GST on inter-State supplies (IGST)	Apportioned per GST Council-informed law
270	Most other Union List taxes and duties	Prescribed percentage, per Finance Commission-informed presidential order
271	Surcharge on taxes/duties under 269 and 270	0%, wholly retained in the Consolidated Fund of India

Read together, these provisions show a spectrum: Article 271 keeps the whole surcharge for the Union, Article 270 shares a formula-based percentage, and Article 269 hands over the entire proceeds to states — with Article 269A sitting alongside as the GST-specific apportionment route.

UPSC Relevance

Prelims

• Article 270 covers Union List taxes and duties other than those under Articles 268, 269, 269A and the Article 271 surcharge, and excludes cesses levied for specific purposes.
• Clauses (1A) and (1B), inserted by the 101st Amendment Act, 2016, bring certain GST-related collections into the same distribution mechanism.
• The President prescribes the states' share by order, mandatorily after considering Finance Commission recommendations once one has been constituted.
• "Net proceeds" under Article 279 means proceeds minus cost of collection, certified finally by the CAG.

Mains

• Examine how Article 270's exclusion of cesses from the divisible pool affects the fiscal space available to states relative to the Union.
• Discuss the institutional link between Article 270 and the Finance Commission under Article 280 in operationalising cooperative fiscal federalism.

FAQ

Q1. What taxes does Article 270 cover? All Union List taxes and duties except those under Articles 268, 269 and 269A, any surcharge under Article 271, and any cess levied by Parliament for a specific purpose.

Q2. Who decides the states' share under Article 270? The President, by order — before a Finance Commission is constituted; after one exists, the order can only be made after considering that Commission's recommendations.

Q3. Why are cesses excluded from Article 270's divisible pool? Because Article 270(1) expressly carves out "any cess levied for specific purposes under any law made by Parliament" from the taxes it covers, so cess proceeds are not distributed to states under this article.

Q4. How is Article 270 different from Article 269? Article 269 assigns 100% of covered tax proceeds to states; Article 270 shares only a prescribed percentage of covered proceeds, fixed with reference to Finance Commission recommendations.

Q5. What does "net proceeds" mean for Article 270 purposes? Under Article 279, it means the proceeds of a tax or duty reduced by the cost of collection, with the figure certified finally by the Comptroller and Auditor-General.

Quick Revision

• Article 270 — most Union List taxes/duties, levied and collected by Union, shared with states per prescribed percentage.
• Excludes Articles 268, 269, 269A proceeds, Article 271 surcharge, and specific-purpose cesses.
• Clauses (1A)/(1B) (101st Amendment, 2016) extend the mechanism to certain GST collections.
• President prescribes the states' share by order, after considering Finance Commission recommendations once constituted (Article 280).
• "Net proceeds" (Article 279) = proceeds minus cost of collection, CAG certificate final.

Sources

• The Constitution of India, Articles 269, 269A, 270, 271, 279, 280 — Ministry of Law and Justice, legislative.gov.in.

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.