Centre releases double tax devolution instalment to states in December worth Rs 1.46 lakh crore

The devolution of states’ shares in taxes is done in 14 installments every year.

The central government, on December 22, said it had released an additional instalment of Rs 72,961.21 crore as tax devolution to states. This follows a similar transfer earlier this month on December 11, the finance ministry said in a statement.

“In view of the forthcoming festivities and the New Year, the Union Government has authorised the release of an additional instalment of tax devolution amounting to Rs 72,961.21 crore to strengthen the hands of State Governments for financing various social welfare measures and infrastructure development schemes,” the finance ministry said.

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Taking the two instalments together, the Centre has transferred Rs 1.46 lakh crore to states in December. This is the second double instalment of tax devolution to states for the year 2023-24, with the first coming in June.

As usual, the state receiving the largest amount was Uttar Pradesh, accounting for Rs 13,089 crore of the Rs 72,961 crore transferred on December 22, followed by Bihar at Rs 7,338 crore. The division of funds among states is done on the basis of a variety of factors, including population.

The central government releases tax devolution to states in 14 equal instalments every year. As such, this involves two months where the instalment is double the usual monthly amount. However, these double-instalment months normally come at the end of the financial year after the Centre has greater clarity on its finances. But with New Delhi’s finances in a good position, the last couple of years have seen these additional instalments being brought forward.

As per the 2023-24 Budget, the Centre expects to transfer Rs 10.21 lakh crore to states this year. So, the size of each of the 14 instalments should be Rs 72,961 crore. However, the size of the transfers can increase as the year progresses once the Centre’s revenues improve. This has already happened in 2023-24, with the amount of monthly transfers in the first quarter standing at Rs 59,140 crore.

Also Read: Centre’s FY24 finances get unexpected boost from direct tax collections in August

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Against its budget estimate of Rs 10.21 lakh crore, the Union government has transferred Rs 7.47 lakh crore in the first nine months of the financial year. As such, this leaves Rs 2.74 lakh to be transferred to states in January-March 2024 for the budget estimate to be met, or Rs 91,386 crore per month.

In its statement on December 22, the finance ministry said it will transfer another instalment on January 10, 2024, to states. It, however, did not specify what would be the size of that instalment.