India seeks to cut states' share of federal taxes from 2026

The government is seeking to cut the central tax revenues that states receive, three people with direct knowledge of the matter said.

- Reuters

The suggestion will be made to the constitutionally-appointed Finance Commission of India, which makes recommendations on tax sharing along with other aspects of Centre-state fiscal relations, and could lead to a flaring of tensions between the two tiers of government.

The panel, headed by economist Arvind Panagariya, will submit its recommendations by 31 October to be implemented from fiscal year 2026-27. The recommendations are binding.

The central government will recommend the share of taxes going to states be reduced to at least 40% from the current 41%, said one of the sources.