Centre releases 2 instalments of tax devolution worth Rs 1.17 lakh crore to states

The Union government on August 10 released Rs 1.17 lakh crore to states as tax devolution, double of what it would have normally transferred.

"This is in line with the commitment of the government of India to strengthen the hands of states to accelerate their capital and developmental expenditure," the finance ministry said in a statement.

The Centre's tax devolution to states is done in 14 instalments every year. For FY23, this works out to be Rs 58,333 crore a month. However, in the April-June period, Rs 47,592 crore was transferred to states a month, data from the Controller General of Accounts showed.

Assuming a similar sum was transferred in July, states have received Rs 3.07 lakh crore from the Centre as tax devolution in the first five months of FY23. This amounts to 38 percent of the full-year estimate of Rs 8.17 lakh crore.

Tax devolution being done in 14 instalments means one or two months see larger sums of money being released on account of the two extra instalments. This is usually done towards the end of the financial year, once the Centre has greater clarity on its finances.

For instance, in FY21 and FY20, the Centre transferred the two additional instalments to states only in the last month of the financial year.

However, in FY22, the extra instalments were released in November 2021 and January 2022, with even more money being transferred in February and March.

All in all, the Centre transferred Rs 8.83 lakh crore to state governments in FY22, exceeding the revised estimate by Rs 1.38 lakh crore, or 18.6 percent.

The finance ministry said on March 31 that it was able to release extra funds following a "close monitoring" of receipts from taxes and duties.

As per data from the Controller General of Accounts, gross tax collections in FY22 amounted to Rs 27.08 lakh crore— 22 percent higher than the budget estimate and 8 percent more than the revised estimate.

Early trends for FY23 show tax collections are doing well, with the Centre well on track to meet its budget target for gross tax collections despite announcing a cut in excise duties on petrol and diesel in May, though it has imposed a windfall tax on oil producers.