The BJP-led Union government on Thursday, October 10, released Rs 1,78,173 crore in tax devolution to state governments as their share in the divisible pool of central taxes and duties. This disbursement included the regular instalment for October, along with an advance instalment of Rs 89,086.50 crore for the month November. Uttar Pradesh received Rs 31,962 crore, the highest allocation, exceeding the combined total for the five southern states – Karnataka, Kerala, Tamil Nadu, Telangana and Andhra Pradesh – which together received Rs 28,152 crore.
According to the press statement by the Ministry of Finance, the advance was aimed at helping states boost capital spending, manage development and welfare programmes, especially in light of the approaching festive season. Among the southern states, Andhra Pradesh has received Rs 7,211 crore, Karnataka Rs 6,498 crore, Kerala Rs 3,430 crore, Tamil Nadu Rs 7,268 crore, and Telangana Rs 3,745 crore. Collectively, these five southern states received 15.8% of the total funds, whereas Uttar Pradesh alone accounted for 17.9%.
Bihar, another major recipient, received Rs 17,921 crore, followed by Madhya Pradesh with Rs 13,987 crore, West Bengal with Rs 13,404 crore, Maharashtra with Rs 11,255 crore, and Rajasthan with Rs 10,737 crore. These figures highlight the significant allocation differences between northern and southern states.
The Finance Commission determines the tax-sharing formula based on terms of reference set by the Union government. Until the 13th Finance Commission (up to 2010), the formula used population data from the 1971 census. The 14th Finance Commission, effective from 2015, began using both the 1971 and 2011 census data. The 15th Finance Commission now uses only the 2011 census, which benefits states with higher population growth, such as Bihar, Jharkhand, and Uttar Pradesh, while states with better population control, like those in the south, receive a smaller share of taxes.
There is a notable disparity between what some states contribute in taxes to the Union government and what they receive in return. For instance, Karnataka gets back only 15 paise for every rupee it contributes, despite contributing around Rs 4 lakh crore in taxes. Tamil Nadu receives 29 paise per rupee, Telangana 43 paise, Andhra Pradesh 49 paise, and Kerala 57 paise.
Read: Paisa vasool? Decoding unfairness in Union’s tax devolution to south states
On the other hand, states like Bihar and Uttar Pradesh receive significantly more than they contribute. Bihar gets Rs 7.06 for every rupee it contributes, while Uttar Pradesh gets Rs 2.73, Assam Rs 2.63, and Madhya Pradesh Rs 2.42.
This imbalance is also reflected in the 2024-25 interim budget. Uttar Pradesh alone was allocated Rs 2.29 lakh crore, more than the combined total of Rs 1.93 lakh crore for all five southern states. Specifically, Karnataka was allocated Rs 44,485.49 crore (3.6% of the total divisible pool), while Uttar Pradesh received Rs 2,18,816.84 crore (17.9%).
Southern states, despite being major tax contributors, continue to receive lower proportions.
This ongoing disparity in tax devolution has been raised by several southern states. Earlier this year, the Karnataka government had launched a ‘South tax movement’ stating that the southern states were getting a raw deal in the distribution of tax revenue. The movement was aimed at highlighting the alleged fiscal injustice committed by the Union government. The governments of Kerala, Tamil Nadu and Telangana had also protested against the Union government over the disparity.