Centre-State Financial Relations (Articles 264–293)

Part XII of the Constitution — Articles 264 to 293 — builds the fiscal scaffold of the Indian federation. Read alongside the historical background of the Government of India Act, 1935, Part XII tells you three things: who may levy a tax, who collects it, and into whose Consolidated Fund the proceeds finally flow. Around that core, it bolts on a Contingency Fund and a Public Account, a Finance Commission to recommend tax-sharing and grants, an inter-governmental immunity regime under Articles 285 and 289, and — since the Constitution (101st Amendment) Act, 2016 — a parallel goods-and-services-tax architecture in Articles 246A, 269A, 270, 279A and 286. The articles are short. The case law is dense. For a judiciary aspirant the trap is treating finance as a residual chapter; in fact it tests as heavily as Centre-State legislative relations and Centre-State administrative relations.

The classical scheme had three buckets of taxes — those exclusively assigned to the Union, those exclusively assigned to the States, and a sharing pool. The 80th Amendment (2000), the 88th Amendment, and especially the 101st Amendment (2016) re-engineered the sharing pool. The result is a layered fiscal Constitution: legislative heads in Schedule VII, sharing rules in Articles 268 to 270, immunity rules in Articles 285 and 289, and a constitutional referee — the Finance Commission — sitting at five-year intervals under Article 280. Add the GST Council under Article 279A, and the present chapter map is complete.

Article 264 — the interpretive pivot

Article 264 is one line. It says that in this Part “Finance Commission” means a Commission constituted under Article 280. The drafting matters: every reference to “the Finance Commission” in Articles 270, 273, 275 and elsewhere is anchored back to Article 280. The 7th Amendment (1956) cleaned up the original Part C State references; the operative gloss is now confined to the Article 280 body.

Article 265 — no tax without authority of law

Article 265 is the constitutional charter for taxation: “No tax shall be levied or collected except by authority of law.” The Supreme Court has read four ingredients into it. First, the law authorising the levy must be an Act of the appropriate Legislature — not an executive order, a circular, a Finance Minister’s budget speech or a custom (Maheshwari Prasad v. State of U.P., AIR 1957). Second, the law must specify the four taxing components: the subject of the tax, the person liable, the rate, and the value to which the rate applies. Where any of these four is absent, there is no tax in law (Mathuram Agrawal v. State of M.P., (1999)). Third, the levy must be within the legislative competence of the enacting body, judged at the time the law was made (Balaji v. I.T.O., AIR 1962). Fourth, both “levy” and “collect” must be authorised — collection without proper assessment is itself a violation (Chhotabhai Jethabhai Patel v. Union of India, AIR 1952).

The reach of Article 265 is wide. It applies to direct as well as indirect taxes (Mafatlal Industries Ltd. v. Union of India, (1997)). The word “tax” carries the inclusive sense of Article 366(28) — it covers duties, cesses, fees and surcharges. Power to tax cannot be inferred by implication; there must be a charging section that specifically empowers the State to levy (State of W.B. v. Kesoram Industries Ltd., (2004)). Even municipalities, though they may collect, do not have plenary power to tax — they depend on parent legislation (New Delhi Municipal Committee v. State of Punjab, (1997)). Acquiescence by the assessee cannot cure a violation: where a tax is collected without authority, it is recoverable (Amalgamated Coalfields v. Janpada Sabha, AIR 1961).

An important refinement: a tax can be retrospective. The Constitution permits retrospective taxation in all areas other than criminal law under Article 20(1). But the imposition cannot be arbitrary or unreasonable, and the legislature cannot, by retrospective amendment, command the executive to ignore a binding judgment (Government of A.P. v. H.M.T., AIR 1975). It may, however, remove the foundation of the judgment by re-enacting the charging provision validly. Article 265 is not in Part III, so the remedy is Article 226 — the writ jurisdiction — not Article 32 (Rampilal v. I.T.O., AIR 1951) — unless the unconstitutional tax also infringes a fundamental right such as the freedom guaranteed by Article 19(1)(g), in which case Article 32 lies.

Article 266 — Consolidated Fund and Public Account

Article 266(1) creates two Consolidated Funds — one for India, one for each State. All revenues received by the Government, all loans raised through treasury bills or ways-and-means advances, and all repayment receipts flow into the Consolidated Fund. Article 266(2) parks every other public money in the Public Account. Article 266(3) is the spending bar: no money out of the Consolidated Fund except in accordance with law and “for the purposes and in the manner provided in this Constitution.” In practice this is the Appropriation Act passed under Article 114 (and the State equivalent under Article 204). The Supreme Court has held that the Appropriation Act is itself “law” for Article 266(3) — no separate authorising statute is needed for items like the MPLAD scheme (Bhim Singh v. Union of India, (2010)).

Article 267 — the Contingency Fund

Article 267 lets Parliament (and each State Legislature) establish a Contingency Fund “in the nature of an imprest.” It is placed at the disposal of the President (or, for the State Fund, the Governor) so that advances may be made to meet unforeseen expenditure pending Parliamentary or Legislative authorisation under Articles 115 and 116 (or 205 and 206). Conceptually, the Contingency Fund is a bridge — emergency money first, regularisation later. The size of the Fund is itself fixed by Parliamentary law and has been raised periodically.

Distribution of revenues — Articles 268 to 281

The original Constitution placed the Union’s tax pool into four distinct buckets, distinguished by who levies, who collects and who keeps. The 80th Amendment (2000) and the 101st Amendment (2016) collapsed and recast much of this scheme. The clean way to learn it is bucket by bucket.

Article 268 — levied by the Union, collected and kept by the States

Article 268 covers the stamp duties listed in the Union List. The Union levies them; the States collect them within their territory and the proceeds do not enter the Consolidated Fund of India — they stand assigned to the State. Article 268A (service tax, inserted by the 88th Amendment) and Article 272 (Union taxes that may be distributed) have both been omitted by later amendments — 268A by the 101st Amendment of 2016 and 272 by the 80th Amendment of 2000 — because the new GST architecture and the universal sharing pool of Article 270 made them redundant.

Article 269 — levied and collected by the Union, assigned to the States

Article 269 is the inter-State sales-tax bucket. Taxes on the sale or purchase of goods (other than newspapers) where the sale takes place in the course of inter-State trade, and taxes on the consignment of goods in the course of inter-State trade, are levied and collected by the Union but assigned to the States — the proceeds do not enter the Consolidated Fund of India. Parliament formulates the principles for determining when a sale or consignment takes place in the course of inter-State trade (Article 269(3)) — a power exercised through Section 3 of the Central Sales Tax Act, 1956. The Supreme Court has held that Section 3 has two mutually exclusive limbs: a sale that occasions movement of goods from one State to another, and a sale effected by transfer of documents of title during such movement (Tata Iron and Steel Co. v. State of Bihar, AIR 1958). With the GST regime, Article 269 now applies “except as provided in Article 269A.”

Article 269A — the GST inter-State sword

Inserted by the 101st Amendment, Article 269A vests in the Government of India the power to levy and collect goods-and-services tax on inter-State supplies. Crucially, supplies in the course of import are deemed to be inter-State supplies — so the integrated GST swallows the older countervailing-duty regime. The proceeds are apportioned between the Union and the States in the manner Parliament prescribes on the recommendation of the GST Council. Article 269A(2) puts the State share outside the Consolidated Fund of India; clauses (3) and (4) handle the cross-utilisation of input tax credit between IGST and the State and Central GSTs. This is the constitutional spine of the IGST Act, 2017.

Article 270 — the universal sharing pool

Article 270, in its post-2000 form, is the general distribution clause. Every Union tax and duty in the Union List (except those falling under Articles 268 and 269A, the Article 271 surcharges, and any cess for a specific purpose) is levied and collected by the Union and then distributed between the Union and the States. The percentage is “prescribed,” which under Article 270(3) means — once a Finance Commission has been constituted — prescribed by the President after considering its recommendations. Clauses (1A) and (1B), inserted by the 101st Amendment, fold the Union’s share of GST under Article 246A and Article 269A into the same sharing pool. Income-tax attributable to Union Territories stays inside the Consolidated Fund of India — there is no obligation to distribute it (T.M. Kanniyan v. I.T.O., AIR 1968).

Article 271 — the Union surcharge

Article 271 lets Parliament increase any duty or tax under Articles 269 and 270 by a surcharge “for purposes of the Union.” The whole proceeds of such a surcharge form part of the Consolidated Fund of India — the States get no share. The 101st Amendment carved out one exception: the goods-and-services tax under Article 246A cannot be surcharged in this way. The phrase “at any time” means Parliament can layer a fresh surcharge over an existing one to cope with changing circumstances (Ved Vyas v. I.T.O., AIR 1955).

Articles 272 and 273 — a closed history and a closed lifeline

Article 272, which used to govern Union taxes that may be distributed (chiefly excise on non-Union-List goods), was repealed by the 80th Amendment of 2000 once Article 270 became universal. Article 273 lives on as a historical curiosity: grants in lieu of the export duty on jute and jute products to Assam, Bihar, Odisha and West Bengal, charged on the Consolidated Fund of India for ten years from the commencement of the Constitution. The duty has long since been discontinued; the article is now an exam trivia anchor.

Article 274 — prior recommendation of the President

Article 274 is a procedural firewall. Any Bill or amendment that imposes or varies a tax in which States are interested, or alters the meaning of “agricultural income,” or affects the distribution principles in this Chapter, or imposes a Union surcharge, can be moved in Parliament only on the President’s recommendation. The phrase “tax in which States are interested” is defined in Article 274(2): a tax whose net proceeds are wholly or partly assigned to a State, or out of which sums are payable from the Consolidated Fund of India to a State. The provision protects States from blindside Union legislation that would re-engineer their fiscal share (Karnataka Bank Ltd. v. State of U.P., (2008)).

Article 275 — grants-in-aid from the Union

Article 275 authorises Parliament to charge such sums on the Consolidated Fund of India as grants-in-aid of the revenues of States that are in need of assistance. Different sums may be fixed for different States. The first proviso secures additional grants for the welfare of Scheduled Tribes and the raising of the level of administration of Scheduled Areas — the constitutional handshake with the Sixth Schedule. The second proviso preserves a special arrangement for Assam in respect of tribal-area expenditure. Until Parliament acts, the President exercises the power by order, but only after considering the Finance Commission’s recommendations — the proviso to Article 275(2). Article 275 grants are statutory transfers; they sit alongside the Article 282 “any-public-purpose” grants discussed below.

Article 276 — taxes on professions, trades, callings and employments

Article 276 is one of the rare articles whose ceiling has been amended into the very text. Notwithstanding Article 246, no law of the State Legislature on taxes on professions, trades, callings or employments is invalid because it is a tax on income — but the total amount payable to the State or to any one local authority by any one person cannot exceed Rs. 2,500 per annum. The Sixtieth Amendment of 1988 raised the limit from the original Rs. 250. The Supreme Court has held the cap to be a constitutional ceiling that strikes down assessment, not just recovery, beyond the limit (Karnataka Bank Ltd. v. State of U.P., (2008)). Where a tax is composite — part profession tax, part land-and-buildings tax — the cap does not apply (R.R. Engineering Co. v. Zila Parishad, Bareilly, AIR 1980). The corresponding legislative head is Entry 60 of List II.

Article 277 — the savings clause

Article 277 saves taxes, duties, cesses or fees that were being lawfully levied by a State or local authority immediately before the Constitution commenced, even if the subject is now in the Union List, until Parliament legislates to the contrary. The protection is conditional: the identity of the tax — the body that collects it, the area benefited and the purpose — must be unaltered, and the incidence cannot be changed (Town Municipal Committee, Amraoti v. Ramchandra Vasudeo Chimote, AIR 1964). The State cannot use Article 277 to impose a fresh tax, increase the rate beyond the pre-Constitution rate, or alter the taxable event. Article 277 is also the natural home for the doctrinal distinction between a tax and a fee — a fee requires a broad correspondence with the cost of services rendered, while a tax is a compulsory exaction without quid pro quo (Commissioner, H.R.E. v. Lakshmindra Thirtha Swamiar of Shri Shirur Mutt, (1954); Hingir-Rampur Coal Co. Ltd. v. State of Orissa, AIR 1961).

Article 279 — net proceeds and the CAG

Article 279 defines “net proceeds” for the entire sharing scheme: the proceeds of any tax or duty reduced by the cost of collection, ascertained and certified by the Comptroller and Auditor-General — whose certificate is final. This is the unsung article. Without it, every Article 270 distribution would be a permanent battleground over collection costs.

Article 279A — the GST Council

Inserted by the 101st Amendment, Article 279A is the most consequential institutional innovation in fiscal federalism since 1950. The President was required to constitute the GST Council within sixty days of the Constitution (101st Amendment) Act, 2016. Its membership is the Union Finance Minister as Chairperson, the Union Minister of State for Revenue or Finance, and the Finance or Taxation Minister of each State Government. The Vice-Chairperson is chosen from among the State members. The Council’s mandate, set out in Article 279A(4), is to recommend to the Union and the States on the taxes, cesses and surcharges that may be subsumed in the GST; the goods and services subjected to or exempted from GST; the model GST laws and place-of-supply principles; the threshold turnover; the rates and floor rates with bands; special rates during natural calamity or disaster; and special provisions for the eleven listed States, including the north-eastern States and the Himalayan States.

Decision-making is structured by Article 279A(9): every decision is taken by a majority of not less than three-fourths of the weighted votes of the members present and voting. The Centre carries one-third of the weighted vote; all the States together carry two-thirds. Quorum is half the total membership (Article 279A(7)). Article 279A(11) requires the Council to establish a dispute-resolution mechanism for disputes between the Centre and one or more States, between the Centre and States on one side and other States on the other, or between two or more States. The status of the Council’s recommendations — binding or merely persuasive — was clarified by the Supreme Court in the Mohit Minerals line of authority, holding that recommendations are persuasive and the cooperative-federal frame allows both Parliament and the State Legislatures to legislate on GST.

Article 280 — the Finance Commission

The Finance Commission is the constitutional pace-maker of the entire transfer regime. The President must constitute one within two years of the commencement of the Constitution and thereafter every fifth year, or earlier if needed. It consists of a Chairman and four other members appointed by the President. Parliament prescribes the qualifications and the manner of selection — the Finance Commission (Miscellaneous Provisions) Act, 1951 does that.

The Commission’s constitutional mandate under Article 280(3) is fourfold. First, to recommend the distribution of the net proceeds of taxes between the Union and the States and the inter-State allocation of the State share. Second, to recommend the principles governing grants-in-aid out of the Consolidated Fund of India. Third — added by the 73rd and 74th Amendments — to recommend measures to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and the Municipalities, on the basis of the recommendations of the State Finance Commission. Fourth, any other matter referred by the President in the interests of sound finance. Article 281 then requires the President to lay every recommendation, with an explanatory memorandum on the action taken, before each House of Parliament.

Article 282 — grants for any public purpose

Article 282 is the spending power that everyone underestimates. The Union or a State may make any grants for any public purpose, notwithstanding that the purpose is not one with respect to which the corresponding Legislature may make laws. The only limit is that the purpose must be “public.” Article 282 has historically funded a vast architecture of centrally sponsored schemes that lie outside the legislative-list framework, and it is the doctrinal cousin of the distribution of legislative powers in Schedule VII. The State cannot use Article 282 to fund a religious activity — because the freedom of religion provisions in Articles 25 to 27 bar that — but expenditure on the secular regulation of a religious endowment is a public purpose (Kidangazhi Manakkal Narayanan Nambudiripad v. State of Madras, AIR 1954). Whether something is a “public purpose” is for the Government, subject to legislative control, not the courts (K.N. Subba Reddy v. State of Karnataka, AIR 1993). Article 282 grants are different from Article 275 grants — the latter are statutory and Finance-Commission-mediated; the former are executive and discretionary.

Articles 283 and 284 — custody and deposits

Article 283 leaves the custody of the Consolidated Fund and the Contingency Fund, the payments into and withdrawals from each, and the operation of the Public Account to be regulated by Parliament (and the State Legislature for the State variants). Until Parliament makes that law, rules made by the President (or Governor) hold the field. Article 284 captures the parking of suitor deposits and other moneys received by court officials and public servants in their official capacity — these go into the Public Account, not the Consolidated Fund.

Articles 285 and 289 — inter-governmental tax immunity

The federal principle of mutual non-taxation runs through two mirrored articles. Article 285(1) exempts the property of the Union from all taxes imposed by a State or any authority within a State, save as Parliament may otherwise provide. Article 289(1) exempts the property and income of a State from Union taxation. Article 285(2) preserves any pre-Constitution local-authority levy on Union property in respect of property that was liable or treated as liable to that tax immediately before commencement, until Parliament legislates to the contrary.

The reach of Article 285 is generous on “property” — lands, buildings, chattels, shares, debts, anything with money value (Corporation of Calcutta v. St. Thomas School, (1948)) — but narrow on the type of taxation. Property of a Government company or a statutory corporation, having its own legal personality, is not “property of the Union” (Western Coalfields v. Special Area Development Authority, AIR 1982). Where the Union of India allotted land to a public corporation but retained ownership, the immunity continued (Housing & Urban Development Corporation Ltd. v. M.C.D., (2001)). Indirect taxes on Union property — such as customs and excise that operate on the act of importing or manufacturing rather than on the property itself — are not blocked by Article 285 (Karya Palak Engineer, CPWD, Bikaner v. Rajasthan Taxation Board, Ajmer, (2004)).

Article 289 is qualified, not absolute. Clause (2) lets the Union impose a tax on a trade or business carried on by a State — to the extent Parliament provides — and clause (3) lets Parliament declare any trade or business to be “incidental to the ordinary functions of Government”, in which case the Article 289(1) immunity returns. The Constitution Bench in the Reference re Sea Customs Act (AIR 1963) held that the clause (1) immunity is on a tax “on property,” not a tax “in relation to” property: customs and excise are taxes on the event of import or manufacture, not on the goods as such. Where the income belongs to a statutory corporation — even one wholly owned by the State — the immunity does not run (A.P.S.R.T.C. v. I.T.O., AIR 1964).

Article 286 — limits on State taxation of inter-State and import-export trade

Article 286 is a rule of restraint on the State’s sales-tax (now GST) power. After the 101st Amendment, no law of a State may impose, or authorise the imposition of, a tax on the supply of goods or services or both where the supply takes place outside the State, or in the course of the import of goods or services into, or export out of, the territory of India. Parliament is empowered to formulate the principles for determining when a supply takes place in those ways — Section 5 of the Central Sales Tax Act and the corresponding GST place-of-supply chapters do that work. Article 286 is the State-side bracket to the Article 269A inter-State levy and the Article 246A intra-State levy; together with Articles 301 to 307 — see trade, commerce and intercourse — it preserves the national common market.

The pre-2016 case-law on Article 286 still travels. The Supreme Court held in State of Travancore-Cochin v. Bombay Co., (1952) that a sale that occasions an export is a sale in the course of export. In State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory, (1954) the Court drew the famous distinction between the sale that occasions export and the penultimate sale for the purpose of export — only the former qualifies for exemption. Bengal Immunity Co. v. State of Bihar, AIR 1955 held the bans in clauses (1)(a) and (1)(b) to be independent: each must be surmounted before a State levy survives. The Central Sales Tax Act, 1956 codifies the principles under Section 4 (situs of intra-State sale) and Section 5 (sale in the course of import or export).

Articles 287 and 288 — electricity and water carve-outs

Article 287 forbids a State from taxing the consumption or sale of electricity that is consumed by the Government of India, sold to it for its consumption, or used in the construction, maintenance or operation of any railway by the Government or a railway company — unless Parliament provides otherwise. Where a State law does tax electricity, it must ensure that the price charged to the Union or the railway is reduced by the amount of the tax. Article 288 forbids a State, again subject to Parliamentary provision, from taxing water or electricity stored, generated, consumed, distributed or sold by an authority established by Parliament for regulating an inter-State river or river valley — the Damodar Valley Corporation is the textbook instance (Damodar Valley Corporation v. State of Bihar, AIR 1976). A State may, by law, impose such a tax under Article 288(2), but only after reserving the Bill for the President’s assent. Articles 287 and 288 do not displace the general treatment of electricity as goods (State of A.P. v. National Thermal Power Corporation Ltd., (2002)).

Article 290 and 290A — expense adjustment and Devaswom payments

Article 290 is the cost-sharing referee. Where the expense of a court or commission, or a pre-Constitution pension, falls on one Consolidated Fund but the underlying service was rendered to another government, an apportioned contribution is paid — either by agreement or, in default, by an arbitrator appointed by the Chief Justice of India. Article 290A, inserted later, charges a fixed annual sum on the Consolidated Funds of Kerala and Tamil Nadu for the Travancore Devaswom Fund and the Tamil Nadu Devaswom Fund respectively. Article 291 (Privy Purses) was repealed by the 26th Amendment in 1971 and survives only as a section of constitutional history.

Articles 292 and 293 — borrowing power

Borrowing is the second leg of fiscal federalism, and Part XII Chapter II handles it in two short articles. Article 292 vests in the Union the executive power to borrow on the security of the Consolidated Fund of India within such limits as Parliament may by law fix — and to give guarantees within such limits. Article 293(1) gives the State the same executive power, but only “within the territory of India” — a State cannot raise an external loan. Within India, the State borrows on the security of its own Consolidated Fund, subject to limits fixed by its own Legislature.

The decisive Centre-tilt comes in Article 293(3) and (4). A State may not, without the consent of the Government of India, raise any loan if there is still outstanding any part of a loan that the Union has made to it, or in respect of which the Union has given a guarantee. Consent under clause (3) may be subject to such conditions as the Union may think fit. Because every State has historically been a borrower from the Union, in practice every State borrowing is conditioned by Article 293(3). The Fiscal Responsibility and Budget Management Act, 2003 at the Centre, and the corresponding State FRBM laws, set the contemporary debt-to-GSDP ceilings under which Article 293(3) consent operates. The recent Kerala v. Union of India litigation (2023–24) on the State borrowing ceiling tested the contours of Article 293(3) and the ambit of “loan” in the modern context of off-budget borrowings by State public-sector undertakings.

The 101st Amendment — the GST overlay

The Constitution (101st Amendment) Act, 2016 stitched a new layer on top of the existing fiscal Constitution. Article 246A grants concurrent power to Parliament and the State Legislatures to make laws on goods-and-services tax — with the Union’s exclusive power on inter-State supplies preserved. Article 269A vests the IGST levy in the Union with apportioned distribution. Article 270 was amended to fold the GST sharing pool into the universal distribution. Article 279A created the GST Council. Article 286 was rewritten to speak in terms of “supply” rather than “sale or purchase.” Several provisions — Article 268A on service tax, the older language of Article 270, parts of Article 271, Entries 52, 54, 55 and most of 92, 92A, 92B and 92C of the Seventh Schedule — were either omitted or recast. Petroleum crude, high-speed diesel, motor spirit, natural gas and aviation turbine fuel sit outside GST until the GST Council recommends their inclusion under Article 279A(5).

Doctrinal distinctions a judiciary aspirant must hold

Tax versus fee. A tax is a compulsory exaction with no quid pro quo for the individual taxpayer; a fee is a payment for a particular service with broad correspondence between the levy and the cost of the service (Commissioner, H.R.E. v. Lakshmindra Thirtha Swamiar, (1954); Hingir-Rampur Coal Co. Ltd. v. State of Orissa, AIR 1961). The traditional requirement of mathematical proportion between fee and service has softened in the regulatory-fee cases (B.S.E. Brokers’ Forum v. Securities and Exchange Board of India, (2001)) — a broad correlation suffices. A levy that is partly tax and partly fee is, in pith and substance, characterised by its dominant feature.

Tax versus cess. A cess is a tax for a specific purpose; in the generic sense of Articles 265 and 266 it is included within “tax” (Commissioner, H.R.E. v. Lakshmindra Thirtha Swamiar, AIR 1954). The 101st Amendment carves out cesses for specific purposes from the Article 270 sharing pool — they are reserved to the Union.

Levy versus collection. Article 265 uses both words. “Levy” is the assessment or charging stage; “collect” is the realisation stage (Somaiya Organics (India) Ltd. v. State of U.P., (2001)). The two are not synonymous; both must be authorised by law.

Net proceeds versus gross proceeds. Distribution under Articles 269 and 270 operates on “net proceeds” as defined by Article 279 — collection costs are deducted, and the CAG’s certificate is final. Gross proceeds are not what the States receive; this is a frequent MCQ trap.

The architecture of fiscal federalism

Read together, Articles 264 to 293 give the Indian Union the strongest fiscal centre of any major federation in the world. The Union holds the residuary tax power under Entry 97 of List I read with Article 248. The exclusive Union list of taxes covers income other than agricultural income, customs, the corporation tax, capital gains, and the larger excise base. The State list, after the 101st Amendment, has shrunk — most of its productive heads were folded into GST — leaving land revenue, agricultural income, alcohol for human consumption, electricity duty, stamp duties on certain instruments, and entertainment within local bodies. The compensating mechanism is the constitutional sharing pool of Article 270 and the Finance Commission, supplemented by the cooperative GST Council under Article 279A. The doctrinal limits are Articles 285, 286, 287, 288 and 289. The financial-emergency provisions of Article 360 sit in the background as a last-resort fiscal tool. The Schedules — especially the Seventh, Sixth, Eleventh and Twelfth — provide the legislative-list backbone; an aspirant should always read this chapter alongside the Schedules to the Constitution and the wider Constitution of India notes for the full picture.

For a fully formed answer in a judiciary or CLAT PG paper, hold three frames in your head simultaneously. First, the Article 265 charter — every levy traceable to a specific charging provision in a competent statute, with the four taxing components present. Second, the distribution scheme — Articles 268, 269, 269A, 270, 271 — mapped onto the bucket of who levies, who collects, who keeps. Third, the immunity and restraint scheme — Articles 285, 286, 287, 288, 289 — protecting the integrity of the federal market and inter-governmental respect. The Finance Commission and the GST Council are the institutional referees that keep the scheme moving in five-year and rolling cycles respectively. This is the architecture you must be able to draw on a blank page in two minutes.

Frequently asked questions

What is the difference between Article 265 and Article 266 of the Constitution?

Article 265 is a substantive bar on taxation: no tax shall be levied or collected except by authority of law. It governs the source of the State's power to tax. Article 266 is a custodial provision: it creates the Consolidated Fund of India and of each State, places all government revenues, loans and repayments into them, and restricts withdrawal except in accordance with law. In short, Article 265 controls how revenue is raised; Article 266 controls how it is held and spent. The Supreme Court has held that the Appropriation Act under Article 114 is itself the "law" that authorises withdrawal under Article 266(3) (Bhim Singh v. Union of India, (2010)).

How are net proceeds of Union taxes shared with the States after the 80th and 101st Amendments?

Article 270, in its post-2000 and post-2016 form, is the universal distribution clause. All Union taxes and duties (other than those in Articles 268 and 269A, the Article 271 surcharges, and any cess for a specific purpose) are levied and collected by the Union and distributed between the Union and the States. The 101st Amendment added clauses (1A) and (1B) to fold the Union's GST share under Articles 246A and 269A into the same sharing pool. The percentage is prescribed by the President after considering the Finance Commission's recommendations under Article 280. "Net proceeds" means proceeds reduced by the cost of collection, certified by the CAG (Article 279).

Is the recommendation of the GST Council under Article 279A binding on the Union and the States?

No. The Supreme Court has clarified that the GST Council's recommendations are persuasive, not binding, on the Union and the State Legislatures. Article 279A vests in the Council the power to recommend on a wide range of GST matters under clause (4), with weighted voting that gives the Centre one-third and the States together two-thirds. Decisions require a three-fourths majority of weighted votes of members present and voting. But because both Parliament and State Legislatures have concurrent power under Article 246A, neither is constitutionally compelled to accept a Council recommendation. The cooperative-federal frame of Article 279A operates through dialogue, not command.

Does Article 285 protect Union property from all forms of State taxation?

No. Article 285(1) exempts Union property from State taxes save as Parliament may otherwise provide. The Supreme Court has read this narrowly as immunity from a tax on property, not from every levy connected with property. Indirect taxes that operate on a taxable event — such as customs duty on import or excise duty on manufacture — are not blocked by Article 285, even where the goods belong to the Union (Karya Palak Engineer, CPWD v. Rajasthan Taxation Board, (2004)). Property held by a separate juristic entity, such as a Government company or a statutory corporation, is not "property of the Union" and is liable to State and municipal taxation (Western Coalfields v. Special Area Development Authority, AIR 1982). Article 285(2) preserves pre-Constitution local-authority taxes, subject to identity and continuity.

Can a State borrow from a foreign government or international agency under Article 293?

No. Article 293(1) confines the State's executive power to borrowing "within the territory of India." External borrowing is constitutionally a Union prerogative under Article 292. Even within India, Article 293(3) requires the State to obtain the consent of the Government of India before raising any further loan if any part of an existing Union loan to the State is outstanding, or any Union guarantee in respect of a State loan is subsisting. The Union’s consent under Article 293(4) may be subject to conditions — in practice these conditions, calibrated through the Finance Commission and the FRBM framework, control the State's annual net borrowing ceiling.

What is the difference between Article 275 grants and Article 282 grants?

Article 275 grants are statutory transfers charged on the Consolidated Fund of India to States in need of assistance, distributed on the recommendation of the Finance Commission under Article 280; the first proviso adds special grants for Scheduled Tribes and Scheduled Areas, and the second proviso preserves a special arrangement for Assam. Article 282 grants are discretionary executive grants made by the Union or a State for any public purpose, regardless of whether the purpose falls within the legislative competence of the granting government. The Article 282 channel funds most centrally sponsored schemes and is wider in scope but narrower in conditionality — the only limit is that the purpose must genuinely be "public".