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Budget 2021: Tax devolution to states at 41%, non-lapsable fund for defence to be set up

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The Central Government has accepted a number of key recommendations issued by the 15th Finance Commission, including sharing 41 per cent of the net proceeds of the Union taxes with the states, the creation of a non-lapsable fund for defence in the public account of India, and undertaking a detailed exercise to rationalise and bring down the number of centrally sponsored schemes.

With regard to the sharing of Union taxes, the 15th Finance Commission had recommended that 41 per cent of the taxes collected by the Centre be shared with the states, compared to the present 42 per cent. “The Commission felt that financial resources equivalent to 1% of the net proceeds of Union taxes should be retained with the Central Government for financing the requirements of the newly formed Union Territories of Jammu & Kashmir and Ladakh,” according to the Action Taken Report on the Commission’s recommendations, tabled in Parliament by Finance Minister Nirmala Sitharaman.

The Finance Commission’s report was submitted to the President on November 9, 2020.

NK Singh, the 15th Finance Commission’s Chairman said that most of the recommendations have been accepted by the government. He said that the government has also accepted recommendations relating to having an extra fiscal space for states as well as to have a new group to examine Centre and state’s fiscal trajectory.

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