In a financial year, the Union Government's Gross Tax Revenue is ₹ billion. From this total, ₹ billion is derived from cesses and surcharges, ₹ billion represents the cost of tax collection, and ₹ billion constitutes taxes collected from Union Territories without legislatures. If the Finance Commission mandates a vertical devolution rate of the net divisible pool to the states, what is the total amount (in ₹ billion) to be distributed among the states?
Answer: 11890 ₹ billion
Answer
The total amount to be distributed among the states from the net divisible pool is ₹ 11,890 billion.
Under Article 270 of the Indian Constitution, the net proceeds of central taxes available for sharing (the Divisible Pool) exclude cesses, surcharges, tax collection costs, and tax revenues from Union Territories without legislatures. Subtracting ₹ 4,500 billion, ₹ 500 billion, and ₹ 1,000 billion from Gross Tax Revenue (₹ 35,000 billion) leaves a net pool of ₹ 29,000 billion. Multiplying this net pool by the 41% Finance Commission vertical devolution rate yields ₹ 11,890 billion.
Step-by-Step Solution
Key Concept
Constitutional provisions under Article 270 for the calculation of the Net Divisible Pool of taxes and vertical tax devolution under Finance Commission recommendations.