Finance Minister Nirmala Sitharaman on Thursday said that fixing 41 per cent as share of states from the divisible pool of taxes should not be seen as a “reduction” but was a result of one state becoming two Union territories.
Her remarks came in response to a query in Lok Sabha about the allocation by NCP member Supriya Sule.
States’ share coming down to 41 per cent from 42 per cent should not be read as a reduction, the minister said.
“42 per cent was the devolution formula based on the Finance Commission’s recommendations as states’ share but when there is one less state, which has become a Union territory… to that extent that one per cent was brought down,” she said during an intervention on Budget discussion.
It is because that portion has to be added to Union territories to which the Centre distributes, she added.
Jammu & Kashmir has been converted into Union territories of J&K and Ladakh.
“So, kindly don’t read as reduction in devolution of quantum… if there is one less state which is now become part of centre’s kitty as Union territory to that extent that portion goes to the Centre’s kitty,” she said.
Earlier this month, the 15th Finance Commission recommended 41 per cent share in the divisible pool of taxes for states and 1 per cent for the newly created Union territories of J&K and Ladakh for the financial year 2020-21.
The 14th Commission had recommended the share of states at 42 per cent in the divisible pool of taxes.