For FY21, the 15th Finance Commission has kept tax devolution to 28 states at 41% of the divisible pool
Continuing to provide some relief to the states affected by revenue crunch, the Centre on Wednesday sanctioned Rs 46,038 crore as the May instalment of devolution of states’ share in central taxes, based on the FY21 Budget estimate (BE).
“These releases, similar to April releases, have been calculated based on tax receipts projected in Budget 2020-21 & not as per actuals. GoI’s prime objective has been protecting states revenues & meeting their liquidity requirements in their fight against Covid-19 global pandemic,” finance ministry tweeted.
For FY21, the 15th Finance Commission has kept tax devolution to 28 states at 41% of the divisible pool. In April, the Centre had also provided Rs 46,038 crore, which was 110% of its net revenues in the month, expenditure secretary TV Somanathan has said.
Notwithstanding a massive tax revenue shortfall it is faced with, the Centre is learnt to have decided to stick to the practice of keeping the mandatory transfers to the states from the divisible pool at the same rate as budgeted for FY21, till the 10th instalment due in January. As per extant norms, tax devolutions are made in 14 instalments to states in a year, one in each month up to February and three instalments in March. Extra transfers could be adjusted in future instalments.
The decision to adhere to this trend would give a huge boost to the states’ ability to meet the increased expenditure requirements, without excessive front-loading of borrowings or resort to other forms of costly fund-raising.
On Wednesday, the finance ministry also released Rs 5005.25 crore as first installment of untied basic grants ‘in advance’ for non-million-plus cities to 28 states, pending finalisation of the operational guidelines. This would provide the states with vital financial resources at a critical time, it said.
For differential treatment of cities, the 15th finance Commission divided the urban local bodies into two categories: 50 million-plus urban agglomerations/cities, excluding Delhi and Srinagar and all other cities and towns with less than one million population. The Commission has reccomended Rs 20,021 crore for these non-million cities in FY21.