15th Fin Commission keeps tax devolution to States at 42%

- A required adjustment has been made of about 1% due to the changed status of the erstwhile State of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir

- As per the glide path, fiscal deficit should be 6% in 2021-22, 5.5% in 2022-23, 5% in 2023-24, 4.5% in 2024-25, and 4% in 2025-26

New Delhi: The 15th Finance Commission has recommended that the States be given 42 per cent of the divisible tax pool of the Centre during the period 2021-22 to 2025-26.

The panel's report also provides a range for fiscal deficit and debt path of both the Union and States and also recommended additional borrowing room to States based on performance in power sector reforms. Finance Commission is a constitutional body that gives suggestions on Centre-State financial relations. The report of the 15th Finance Commission was tabled in the Lok Sabha by Finance Minister Nirmala Sitharaman. In order to maintain predictability and stability of resources, especially during the pandemic, the 15th Finance Commission has recommended "maintaining the vertical devolution at 41 per cent – the same as in our report for 2020-21," an official statement said.

It is at the same level of 42 per cent of the divisible pool as recommended by the 14th Finance Commission, the statement said, adding that however, a required adjustment has been made of "about 1 per cent due to the changed status of the erstwhile State of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir". As per the glide path, fiscal deficit should be 6 per cent in 2021-22, 5.5 per cent in 2022-23, 5 per cent in 2023-24, 4.5 per cent in 2024-25, and 4 per cent in 2025-26. The panel, headed by former bureaucrat N K Singh, had in November last year submitted its report titled 'Finance Commission in Covid Times' to President Ram Nath Kovind.

The gross tax revenues for a five-year period are expected to be Rs 135.2 lakh crore. Out of that, divisible pool (after deducting cesses and surcharges and cost of collection) is estimated to be Rs 103 lakh crore, as per the Commission. States' share at 41 per cent of divisible pool comes to 42.2 lakh crore for 2021-26 period.