Govt releases triple tax devolution instalment to states in February worth Rs 2.15 lakh crore

The central government releases tax devolution to states in 14 equal instalments every year

The central government, on February 29, said it had released two instalments worth Rs 1.42 lakh crore as tax devolution to states. This was in addition to Rs 72,961 crore that was already released on February 12, 2024.

Taking the three instalments together including the one released early-February, the Centre has authorised the release of tax devolution amounting to Rs 2.15 lakh crore to strengthen the hands of the states for financing various social welfare measures and infrastructure development schemes, the Union government said in a statement.

The state that received the largest amount was Uttar Pradesh, accounting for Rs 25,495 crore, followed by Bihar at Rs 14,295 crore. The division of funds among states is done on the basis of a variety of factors, including population.

The central government releases tax devolution to states in 14 equal instalments every year. As such, this involves two months where the instalment is double the usual monthly amount. However, these double-instalment months normally come at the end of the financial year after the Centre has greater clarity on its finances. But with New Delhi's finances in a good position, the last couple of years have seen these additional instalments being brought forward.

As per the 2024-25 Budget, the Centre expects to transfer Rs 11.04 lakh crore to states in the current financial year. So, the size of each of the 14 instalments should be around Rs 78,892 crore.

The Union government has transferred Rs 10.33 lakh crore during April 2023 to February 2024. As such, this leaves Rs 71,060 crore to be transferred to states in March 2024 for the revised Budget estimate to be met.

Recently, Southern states, including Karnataka and Tamil Nadu, have accused the Centre of unfair treatment towards them in tax devolutions and grants-in-aid over the past few years. Responding to these allegations, Union Finance Minister Nirmala Sitharaman on February 7 said these claims are "wrong and mischievous".

The Finance Commission recommends the distribution of the net proceeds of taxes between the Union and the states as well as the allocation between the states of the respective shares of such proceeds. At present, as per the recommendation of the Commission, 41 percent of the divisible tax pool of the Centre is transferred to states annually in instalments.