Centre releases ₹1.73 lakh crore as tax devolution to states, nearly double of last month

The Union government on Friday released ₹1,73,030 crore to state governments as tax devolution, a major increase from ₹89,086 crore disbursed in December 2024.

The finance ministry said that the higher amount being devolved this month is to enable states to accelerate capital spending and finance their development and welfare-related expenditures.

Uttar Pradesh received the highest allocation of ₹31,039.84 crore, followed by Bihar with ₹17,403.36 crore and West Bengal with ₹13,017.06 crore. Among the southern states, Tamil Nadu was allocated ₹7,057.89 crore, while Andhra Pradesh and Karnataka received ₹7,002.52 crore and ₹6,310.40 crore, respectively.

Here's the state-wise breakup of amount released:

Tax devolution is a constitutional mechanism to allocate the proceeds of certain taxes among the Union and the states in a fair and equitable manner. The Finance Commission recommends the division of net proceeds of taxes between the union and the states.

The share of states in the central taxes for the 2021 to 2026 period is recommended to be 41%, the same as that for 2020-21 but less than the 42% share recommended by the 14th Finance Commission for the 2015-20 period.

The adjustment of 1% was made to provide for the newly formed union territories of Jammu and Kashmir, and Ladakh from the resources of the Centre.

For the devolution amount to individual states, 12.5% weightage is given to the demographic performance, 45% to income, 15% each to population and area, 10% to forest and ecology, and 2.5% to tax and fiscal efforts.

The funds are expected to strengthen states’ fiscal capabilities and boost economic activity through improved capital spending.