Finance panel may keep states' tax pie unchanged at 41%

States that had sought a higher share of the Union government's divisible pool of tax revenue are likely to be disappointed when the Sixteenth Finance Commission tables its recommendations for the next five financial years.

- Puja Mehra & Gireesh Chandra Prasad

The commission—a constitutional body set up to recommend the distribution of tax revenues between the Centre and states from 1 April 2026 to 31 March 2031—is expected to recommend retaining states' share at 41%, two people said.

However, even at 41%, the amount of tax revenue devolved to states by the Central government every year is expected to go up in absolute terms depending on nominal GDP growth and tax buoyancy.

Arvind Panagariya, chairman of the Sixteenth Finance Commission, said last week that at least 22-23 of India's 28 states had made a case for increasing their share in the divisible pool of tax collections from 41% to 50%.

The Sixteenth Finance Commission is not keen to deviate much from the Fifteenth Finance Commission's recommendations that were accepted by the government, said the first of the two people mentioned above. "There is a fair chance to go with 41% for vertical devolution," said the second person. Both of them spoke on condition of not being named.