On August 10, the Union government doubled the amount it would ordinarily have given to the states by releasing Rs 1.17 lakh crore as tax devolution. The finance ministry issued a statement saying, “This is in accordance with the resolve of the government of India to strengthen the hands of states to accelerate their capital and developmental spending.”
Tax devolution from the federal government to the states occurs annually in 14 installments. This equates to Rs 58,333 crore each month for FY23. However, statistics from the Controller General of Accounts indicated that from April to June, Rs 47,592 crore was given to states each month.
If a comparable amount was transferred in July, the states would have gotten Rs. 3.07 lakh crore as tax devolution from the Center in that month. Due to the fact that tax devolution is done in 14 installments, higher quantities of money are distributed every one to two months as a result of the two more installments. When the Center has a better understanding of its financial situation at the conclusion of the fiscal year, this is often done.
For instance, only in the final month of the fiscal year did the Center transfer the two extra installments to the states in FY21 and FY20. The extra payments, however, were made in FY22 in November 2021 and January 2022, with more funds being sent in February and March.
In all, the Centre gave state governments Rs 8.83 lakh crore in FY22, surpassing the revised projection by Rs 1.38 lakh crore or 18.6%. On March 31, the finance ministry said that more money had been made available as a result of “strict monitoring” of tax and duty receipts.
According to information from the Controller General of Accounts, gross tax receipts for FY22 totaled Rs 27.08 lakh crore, which was 8% more than the revised estimate and 22% more than the budget forecast. Although the Centre announced a reduction in excise rates on gasoline and diesel in May, early trends for FY23 suggest tax collections are doing well, with the Center on pace to exceed its budget target for gross tax revenues despite having slapped a windfall tax on oil companies.
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