Discuss the financial relations between the Union and the States.

The Constitution of India makes an elaborate provision of financial relations between the Central Government and the Government of the States.

The detailed description of the financial relationship between the Centre and the States are given below:

Financial relations between the Centre and the States in India:

1. Taxes levied by the Centre and collected by the States: There are certain taxes which are levied by the Centre, but are collected by the States, e.g., stamp duty and the taxes on the production of medicines and cosmetic preparations.

2. Taxes levied and collected by the Centre but distributed among the States: There are certain other taxes which are levied and collected by the Centre and are distributed among the States in accordance with the laws made by the Parliament. Taxes included in this category are duties on the succession of property other than agricultural land, terminal taxes on goods or passengers carried by air, sea or railways, taxes on railway freights and fares, taxes on newspapers, taxes on inter-state trade or commerce etc.. But such taxes concerning the Union Territories are levied by the Centre.

3. Taxes levied and collected by the Centre and distributed between the Centre and the States: Some taxes are such as levied and collected by the Centre, but those are distributed between the Centre and the States. Income-tax on the income, other than that from the agricultural land, is included in this category. Income-tax is distributed between the Centre and the States on the recommendations of the Finance Commission. The share of the Union Territories goes to the Centre. Excise duties on the Union, other than those on medicine and toilet preparation, will be levied and collected by the Centre but may be distributed between the Centre and the States in accordance with the laws made by the Parliament.

4. Grants-in-Aid to the States: The Constitution of India provides for grants to the States from the Union resources. Under Article 273 the states of Assam, Bihar, Orissa and West Bengal are given grants in lieu of export duty on jute and jute products. The sums of such grants may be those as prescribed by the President of India. These sums are to be paid as long as the export duty on jute products continues to be levied by the Government of India or until the expiration of ten years since the inauguration of the Republic, whichever is earlier. Article 273 provides general provision of grants to the States. The Parliament by law provides grant-in-aid to the needy states out of Consolidated Fund of India. The amount is to be decided by the Parliament according to the needs of the states

5. Appointment of the Finance Commission: The President is empowered to appoint a Finance Commission after every 5 years or earlier if he deems so necessary. It will make recommendations to the President on the distribution of taxes between the Union and the States, the principles of distributing grants-in-aid to the states and any other matter which the President refer to the commission in the interest of sound finance.