Centre releases Rs 1.18 lakh cr as third installment of tax devolution to states in June

New Delhi: The centre has released Rs 1.18 lakh crore as the third installment of tax devolution to states in June, the Finance Ministry said on Monday. One advance installment, in addition to the regular installment due in June 2023, is being released to states to enable them to speed up capital spending, finance their development/welfare-related expenditure, and also to make available resources for priority projects/ schemes.

Centre has released 3rd installment of tax devolution to state govts amounting to Rs 1,18,280 cr

"The Union Government has released 3rd installment of tax devolution to state governments amounting to Rs 1,18,280 crore on 12th June 2023, as against normal monthly devolution of Rs 59,140 crore," the ministry said in a statement. Currently, 41 percent of taxes collected by the Centre is devolved in 14 installments to states during a fiscal year.

What is tax devolution?

The tax devolution mechanism is a significant fiscal arrangement between the Union Government and State Governments in India. Under this system, a portion of the central government's tax revenue is allocated to the states based on a predetermined formula. This allocation takes into account factors such as population, income distance, and fiscal capacity.

The Ministry of Finance's decision to release an extra installment underscores the government's commitment to supporting state-level development efforts and addressing the need for increased capital expenditure. By providing additional financial resources, the government aims to empower State Governments to accelerate progress, stimulate economic growth, and meet the evolving needs of their respective regions.

Role of tax devolution

The tax devolution plays a crucial role in ensuring a balanced distribution of resources between the central and state governments, facilitating effective governance and enabling decentralized decision-making. This move further emphasizes the government's focus on cooperative federalism and its efforts to empower states in their pursuit of inclusive development.

With the release of the third installment of tax devolution, State Governments can now utilise the funds to expedite development projects, prioritise welfare schemes, and promote overall socio-economic progress within their jurisdictions.

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