Taxing Without Sharing: The Constitutional Problem Of Cesses And Surcharges Under India's Federal Framework
- IJLLR Journal
- Mar 27
- 2 min read
Anurag Dutta, SRM School of Law, SRMIST, Chennai
N Sailesh Kumar, SRM School of Law, SRMIST, Chennai
ABSTRACT
India's Constitution gives the major taxes to the Union government. These include income tax, corporation tax and customs duty. The States on the other hand are responsible for spending on health, education, roads and agriculture. This creates a well-known problem. The Union earns more than it needs for its own work. The States need to spend more than they can earn from their own taxes. Article 280 of the Constitution deals with this problem. It requires the President to set up a Finance Commission every five years. The Finance Commission decides how much of Union tax money goes to the States. This transfer happens through what is called the divisible pool under Article 270. Cesses and surcharges are treated differently from other Union taxes. Articles 270 and 271 keep them completely outside the divisible pool. Every rupee collected through a cess or a surcharge stays with the Union. It is not shared with the States at all. What started as a small part of Union revenues has grown very large. The combined share of cesses and surcharges peaked at 20.23 percent of gross tax revenue in 2020-21. It came down to 14.09 percent in 2023-24. Total collections that year were Rs. 4,88,316 crores. The Comptroller and Auditor General of India in Report No. 4 of 2020 found that Rs. 2.74 lakh crore was collected through 35 cesses in 2018-19. Out of this only Rs. 1.64 lakh crore went to designated funds. By March 2024 the total amount not transferred to designated reserve funds had grown to Rs. 3,69,307 crores. This was recorded in CAG Report No. 16 of 2025. The Fifteenth Finance Commission Fixed States' share at 41 percent of the divisible pool. But States got only 29 percent of gross tax revenue in 2020-21. By 2024-25 this had barely moved to 32 percent. The Sixteenth Finance Commission in its report for 2026-31 found that cesses and surcharges had reduced the divisible pool from 89.1 percent of gross tax revenue in 2014-15 to a 74-80 percent range during the Fifteenth Finance Commission period. This study looks at Articles 246, 265, 270, 271 and 280 through a doctrinal lens. It uses official fiscal data to support the analysis. It asks whether the steady growth of non-shareable revenues under Articles 270 and 271 has damaged the fiscal federalism framework that Article 280 was designed to protect.
Keywords: Cesses and Surcharges, Divisible Pool, Article 270, Fiscal Federalism, Finance Commission, Basic Structure Doctrine.
