Centre–State Relations in India: Legislative, Administrative & Financial (Articles 245–293)
Centre–State relations are the crux of any federal constitution — and India's provisions are the most elaborate in the world. This guide organises the whole topic into three pillars, with every Article in sequence, real examples, and the 2024–26 updates that changed it: the 16th Finance Commission award (live since April 2026), the Supreme Court's Presidential Reference opinion on Governors, and the Article 293 borrowing case.
The Framework: How the Constitution Divides Power
Centre–State relations are the crux of any federal constitution. India's Constitution contains elaborate provisions on this compared to all other federations — the United States, Australia and Canada included. The reason is historical: India's federation was created by the Constitution rather than by an agreement among pre-existing states, so every strand of the relationship had to be written down.
The distribution rests on three pillars. Learn the topic in this order and it becomes a sequence rather than a list.
There is no chapter on Centre–State judicial relations — because India has a single, integrated judiciary that enforces both Union and State laws. Contrast the United States, which runs parallel federal and state court systems. This absence is itself a Prelims point: the Indian Constitution provides for legislative, administrative and financial relations, but not judicial relations.
Many class notes place Administrative Relations in Part XII. That is incorrect. Part XI is titled "Relations between the Union and the States" and contains both Chapter I (Legislative, 245–255) and Chapter II (Administrative, 256–263). Part XII is "Finance, Property, Contracts and Suits" (Articles 264–300A), which is where the financial relations (268–293) sit. Two pillars in Part XI, one in Part XII.
India's federalism is not a fixed line on a map — it is a running negotiation. The Constitution set the terms in 1950, but the balance is renegotiated every five years by a Finance Commission, every fortnight by the GST Council, and every time a Governor sits on a Bill. Learn the Articles as the rules of a game that is still being played. — Legacy IAS Faculty
Pillar 1: Legislative Relations (Articles 245–255)
Legislative relations break into five questions: territory (245), subject matter (246), Parliament's entry into the State List, restrictions on State legislatures, and the doctrines courts use to resolve conflicts.
1.1 Territorial Jurisdiction — Article 245
- Parliament can make a law for the whole or any part of the territory of India.
- States can make a law for the whole or any part of the State.
- Laws passed by Parliament have extra-territorial application — they are applicable to Indian citizens and their property, beyond the territory of India.
Examples: the pursuit of Vijay Mallya abroad under Indian law — now aided by the Fugitive Economic Offenders Act, 2018. Or the Hindu Marriage Act, 1955: an Indian citizen who marries a second time outside India is still caught by Indian law, because the law follows the citizen, not the soil.
Extra-territorial operation is not unlimited. In GVK Industries Ltd. v. ITO (2011), a Constitution Bench held that Parliament may legislate extra-territorially, but only where there is a real nexus with India. A law with absolutely no nexus to India would be ultra vires.
The related Doctrine of Territorial Nexus — from State of Bombay v. R.M.D. Chamarbaugwala (1957) — allows a State law to apply to something outside the State if there is a sufficient territorial connection and the liability is relevant to that connection. Adding this nuance turns a one-line note into a proper answer.
Restrictions on the powers of Parliament
- The President, through regulations, can repeal or modify any law passed by Parliament for the UTs of the Andaman & Nicobar Islands, Lakshadweep, Dadra & Nagar Haveli and Daman & Diu, Ladakh, and Puducherry (only if its Assembly is dissolved or suspended).
- The Governor of Fifth Schedule States can direct whether a law passed by Parliament shall apply to a Scheduled Area or not, or apply with such modifications as he thinks fit.
- Under the Sixth Schedule: the Governor for tribal areas in Assam, and the President for tribal areas in Meghalaya, Tripura and Mizoram, can direct whether a law passed by Parliament shall apply or not, or shall apply with such modifications as he thinks fit.
For the Fifth Schedule, the power lies with the Governor. For the Sixth Schedule, it is the Governor for Assam but the President for Meghalaya, Tripura and Mizoram. Assam is the odd one out — remember it as "Assam keeps its Governor".
1.2 Subject Matter — Article 246 and the Three Lists
- Union List: only Parliament can make a law.
- State List: States can make law — and Parliament can, under certain circumstances (see 1.4 below).
- Concurrent List: both Parliament and the State can make a law.
| List | Entries in 1950 | Entries now | Examples |
|---|---|---|---|
| Union | 97 | 98 | Foreign Affairs · Defence · Armed Forces · Union Public Services · Currency & Coinage · Inter-State Trade & Commerce · Airways & Railways · Communication · Inter-State River Disputes · Multi-State Cooperatives |
| State | 66 | 59 | Police · Public Order · Cooperatives & Cooperative Societies · Health · Agriculture · Water · Local Self-Government · Intoxicants · Land |
| Concurrent | 47 | 52 | IPC and CrPC · Marriage & Divorce · Economic & Social Planning · Labour Laws |
How other federations do it
- USA and Australia: only one list (federal powers). Everything remaining — the residuary power — rests with the provinces/states.
- Canada: only two lists — Union and Province. Residuary power is with the Centre.
- India: three lists, and the residuary power is with the Union — the Canadian model, taken further.
India's three-list scheme comes from the Government of India Act, 1935.
The 42nd CAA, 1976 — five subjects moved
Deleted from the State List and added to the Concurrent List. Memorise these five:
- Education
- Forests
- Prevention of cruelty to animals (wild animals and birds)
- Weights & Measures
- Administration of Justice; Constitution and organisation of all courts, except the Supreme Court and High Courts
Water is Entry 17 of the State List, subject to Entry 56 of the Union List (inter-State rivers). There is a standing recommendation to move water from the State List to the Concurrent List — argued for on grounds of integrated basin management and inter-State disputes, and resisted by States as a serious erosion of autonomy. This is a ready-made Mains question, and the 42nd Amendment's transfer of Forests is the precedent both sides cite.
1.3 Residuary Powers — Article 248
- Residuary power is with Parliament. Any entry not in the three Lists would be enacted by Parliament (also Entry 97 of the Union List).
- It also includes the right to levy taxes not mentioned in any list — e.g. Gift tax, Wealth tax, Expenditure tax.
- Example: the establishment of consumer courts under the Consumer Protection Act, 2019 — laws enacted under residuary powers.
Article 248 confers the residuary power of legislation generally. Taxation is a sub-set: Article 248(2) says that residuary power "shall include the power of making any law imposing a tax not mentioned in either of those Lists". So the correct framing is residuary legislative power, which includes residuary taxation power — not the other way round. A statement calling 248 a purely taxation provision is false.
1.4 Parliament's Five Gateways into the State List
This is the highest-yield block in legislative relations. Parliament can legislate on a State List subject through five doors — Articles 249, 250, 252, 253 and 356. The trick is knowing how each is triggered and how long the law survives.
| Article | Trigger | Life of the law | Who can repeal / examples |
|---|---|---|---|
| 249 | Rajya Sabha resolution that it is necessary in the national interest, passed by 2/3rd of members present and voting. No 50%-of-total-membership requirement. Covers State List or Goods & Services Tax. | Resolution lives 1 year (renewable any number of times). Law ceases 6 months after the resolution ends. The life of the law depends on the life of the resolution. | An Indian innovation — no parallel in other federations. It is a licence to make laws, granted by the House of the States itself. |
| 250 | National Emergency (Article 352) is in operation. Covers State List or GST. | Law ceases to operate 6 months after the Emergency ends — automatically. | Example: the Supply of Goods and Prices Act, 1950 — prices had to be regulated because of the Korean War. |
| 252 | Two or more States pass a resolution requesting Parliament to enact a law on a State List subject. | No automatic expiry. Any other State can adopt it later by passing its own resolution. | Only Parliament can repeal, amend or modify the law. The State resolution operates as a surrender of legislative power to the Centre — thereafter the States can no longer legislate on that matter. |
| 253 | To implement an international treaty, agreement or convention. | Permanent — no expiry. | The widest door of all. Examples: UN (Privileges and Immunities) Act, 1947 · Geneva Convention Act, 1960 · Anti-Hijacking Act, 1982 · Environment (Protection) Act, 1986 · laws enacted under TRIPS commitments. |
| 356 | President's Rule is in operation in a State. | Continues even after the emergency ends. | However, the State legislature may repeal, amend or modify the law. Compare with 250, where the law dies automatically after 6 months. |
Article 252 in practice — the laws you must name
- Prize Competitions Act, 1955
- Wildlife (Protection) Act, 1972 — the rationale: wildlife corridors run across States, so a single law was needed.
- Water (Prevention and Control of Pollution) Act, 1974
- Urban Land (Ceiling and Regulation) Act, 1976
- Transplantation of Human Organs Act, 1994
Why do States surrender power like this? Because of a significant lack of financial and human resources at the State level for subjects that are technically complex or inherently cross-border.
No. Under Article 251, the State's power to legislate on that subject remains INTACT. But in case of any incompatibility, the law passed by Parliament shall prevail. This applies to both 249 and 250. The Union's law overrides; it does not erase.
Contrast Article 252, where the State's resolution does amount to surrender — the State can no longer legislate on that matter at all. 251 = coexistence with supremacy; 252 = surrender. That distinction is exam gold.
1.5 Repugnancy and Union Supremacy — Articles 246 and 254
- Article 246 hierarchy: Union law prevails over State law; Concurrent law prevails over State law.
- Parliament can make a law on any matter in the three Lists for areas "other than the States" — i.e. applicable for Union Territories, including Delhi, Jammu & Kashmir and Puducherry.
- Article 254: if Parliament and a State both enact a law on a Concurrent List entry, then in case of any incompatibility, the law passed by Parliament shall prevail.
- The exception: if a State law has been reserved for the assent of the President and receives it, the State law shall prevail in that State. But Parliament can still overturn it later by passing a fresh law on the same entry.
The Prevention of Cruelty to Animals Act, 1960 is a Concurrent List law. After the Supreme Court banned Jallikattu in Animal Welfare Board of India v. A. Nagaraja (2014), Tamil Nadu amended the Central Act to exempt bulls — and, crucially, reserved the amendment for the President, who gave assent. Under Article 254(2), the State amendment therefore prevailed in Tamil Nadu.
The update your notes could not have: the challenge to that amendment was settled by a five-judge Constitution Bench on 18 May 2023, which upheld the Tamil Nadu amendment (and the Maharashtra and Karnataka equivalents). The Court held the amended law substantially reduced pain and suffering, was validly reserved and assented to, and that it was not for the Court to decide whether Jallikattu is part of Tamil culture — that is for the legislature. Article 254(2) is now a proven, judicially-blessed route for States to carve out exceptions from Central law.
1.6 Restrictions on the Powers of State Legislatures
- Under Article 200, a Bill reserved for the President requires the assent of the President.
- Certain Bills require the assent of the President:
- A Bill imposing a tax on the sale or consumption of electricity.
- A Bill on a subject in the Concurrent List, over which a law has already been enacted by Parliament (Article 254(2)).
- A Bill under Article 304(b), which restricts the freedom of trade and commerce, requires the prior permission of the President before introduction.
- Restrictions imposed during an Emergency — all three types.
This is the single most important development in Centre–State legislative relations in a decade, and any note written before 2025 is now incomplete. The sequence:
- 8 April 2025 — State of Tamil Nadu v. Governor of Tamil Nadu: a two-judge Bench held the Governor's indefinite delay over 10 Bills was illegal. It ruled that Article 200 gives the Governor only three options — assent, withhold, or reserve for the President — with no absolute veto and no pocket veto, and that he must assent to a Bill re-passed by the Assembly. It set timelines (1 month / 3 months) and used Article 142 to "deem assent" to the 10 Bills.
- 13 May 2025: President Droupadi Murmu invoked Article 143, referring 14 questions to the Supreme Court (Special Reference No. 1 of 2025).
- 20 November 2025 — the Opinion (In re: Assent, Withholding or Reservation of Bills, 2025 INSC 1333): a five-judge Constitution Bench led by CJI B.R. Gavai held that:
- Courts cannot prescribe or impose timelines on the Governor or the President.
- The concept of "deemed assent" is alien to the Constitution — a Bill cannot become law automatically by lapse of time, and Article 142 cannot substitute the Governor's or President's order.
- But Governors cannot delay Bills indefinitely. Withholding assent simpliciter is not permitted — it is inextricably linked to the duty to return the Bill to the legislature with comments.
- Decisions under Articles 200 and 201 are non-justiciable before a Bill becomes law; courts cannot examine a Bill's contents at that stage. Presidential discretion under Article 201 is non-justiciable, and no timelines apply to the President.
- A State law is not in force without the Governor's assent. The remedy for prolonged inaction is a limited mandamus.
The exam framing: the Court diagnosed the disease but limited the cure. It agreed Governors must act, but refused to let courts hold a stopwatch. Cite it as a "structural clarification without structural correction".
1.7 Miscellaneous Provisions — Articles 246A, 247 and 255
- Article 246A (added via the 101st CAA, 2016):
- Parliament and the State Legislature may impose Goods and Services Tax.
- Parliament has exclusive power with respect to inter-State GST.
- Article 247: Parliament may establish additional courts for better implementation and administration of laws passed by Parliament.
- Article 255: an Act of Parliament or a State Legislature shall not be invalid by reason only that the prior recommendation of the President or Governor (if required) was not taken — provided the assent has been given by the authority whose prior permission was required. Example: if prior recommendation for a Money Bill was not taken but Parliament passes it and the President assents, it will not be invalid. Article 255 is a curative provision: assent cures the defect of missing prior recommendation.
Article 246A opens with a non-obstante clause: "Notwithstanding anything contained in Articles 246 and 254". GST therefore sits outside the three-list scheme altogether — it is neither Union List, State List nor Concurrent List. It creates a simultaneous, concurrent taxing power that is sui generis.
This mattered in Union of India v. Mohit Minerals (May 2022), where the Supreme Court held that GST Council recommendations are only recommendatory and NOT binding on the Union and the States, because both have simultaneous legislative power under 246A. The Court described this as "cooperative federalism" that must sometimes be "un-cooperative federalism" — States can dissent. The single most quotable line available on fiscal federalism.
1.8 Doctrines of Interpretation of Legislative Entries
When two entries appear to overlap, courts apply three doctrines. This has been asked in Mains before.
| Doctrine | What it means | Leading case |
|---|---|---|
| Pith and Substance | Look at the true nature and character of a law, not its incidental effects. If the law is substantially within the legislature's competence, an incidental encroachment on another List does not invalidate it. | Prafulla Kumar Mukherjee v. Bank of Commerce (1947); State of Bombay v. F.N. Balsara (1951) |
| Colourable Legislation | "What cannot be done directly cannot be done indirectly." If a legislature lacks competence, it cannot achieve the same end by disguising the law. It goes to competence, not motive — bad faith is irrelevant. | K.C. Gajapati Narayan Deo v. State of Orissa (1953) |
| Harmonious Construction | Conflicting entries must be reconciled so that no entry is rendered nugatory. Read each to give effect to both; only if reconciliation is impossible does Union supremacy apply. | Calcutta Gas Co. v. State of West Bengal (1962) |
Pillar 2: Administrative Relations (Articles 256–263)
Legislative relations answer who makes the law. Administrative relations answer who implements it — and the answer is often not who you would expect.
2.1 Extent of Executive Power — Articles 73 and 162
Executive power is NOT defined in the Constitution. You can define legislative and judicial power precisely; executive power is the residue — whatever is left after those two are taken out.
Article 73 — Extent of executive power of the Union
- Union laws
- International agreements, treaties and conventions
Article 162 — Executive power of the States
- State laws
- Concurrent laws — unless the law specifies otherwise
- Laws made by Parliament under 249, 250, 252, 253 and 356
Examples where the Union implements instead: the Essential Commodities Act, 1955 and the Forest (Conservation) Act, 1980 — both Concurrent List laws where the Central law reserves implementation to the Union.
"There is centralization in legislative powers, and decentralization in administrative powers."
The Union writes most of the important law — but the States execute it on the ground. Even under Article 73, some powers have been delegated to the States. This is why India is often called a system of "legislative centralisation with administrative decentralisation": the Union has the pen, the States have the machinery. It also explains why the Centre needs Articles 256, 257 and 365 — it cannot implement its own laws without the States.
2.2 Restrictions on the Administrative Power of States — the Principle of Federal Supremacy
The executive power of a State must be exercised in such a manner that:
- Under Article 256, it does not impede the execution of parliamentary laws.
- Under Article 257, it does not hinder the executive power of the Union.
In case of violation of 256 and 257, the Centre — under its executive power — can issue directions, i.e. commands.
The Centre can also issue directions in four specific matters
| # | Matter | Article |
|---|---|---|
| 1 | Maintenance of the means of communication of national importance | Article 257 |
| 2 | Protection of railways | Article 257 |
| 3 | Drawing up and implementation of schemes for the welfare of Scheduled Tribes | Article 339(2) |
| 4 | Provision of primary education in the mother tongue for linguistic minorities in a State | Article 350A |
Only the first two are in Part XI (Article 257, the Centre–State relations chapter). The other two sit at separate places elsewhere in the Constitution — 339(2) is in the Scheduled Tribes chapter and 350A is in the Official Language part. Examiners like this because candidates assume all direction-powers are in one place. Two in the chapter, two outside it.
Articles 256 and 257 look like polite housekeeping. They are not. They are enforceable at the point of a gun — because Article 365 converts disobedience of a direction into a deemed failure of constitutional machinery, which then unlocks Article 356. A State that ignores a lawful Central direction is not merely in breach; it is a State whose government can be dismissed. That is what makes federal supremacy real rather than rhetorical.
2.3 Delegation — Articles 258 and 258A
Federalism in India is not one-way traffic. Powers flow both directions — and the upward route was an afterthought.
Article 258 — Centre → States (downward)
- The President, with the consent of the State Government, can delegate the executive functions of the Union, conditionally or unconditionally.
- Parliament by law can delegate functions to the States — and here the consent or permission of the State is NOT required.
Example — Census Act, 1948: State Government officials collect the data, but Census is a subject under the Union List (Entry 69).
Article 258A — States → Centre (upward)
The Governor, with the consent of the Centre, may delegate executive functions of the State, conditionally or unconditionally, to the Centre.
Inserted by the 7th CAA, 1956 — the original Constitution had no provision for a State to hand a function upward. The omission was noticed only after the States Reorganisation exercise.
Article 258(1) — President delegating to a State — requires the State's consent.
Article 258(2) — Parliament delegating by law — does NOT require the State's consent.
Why the difference? Because when Parliament acts, it acts as the sovereign legislature and can simply impose the duty by statute — as it did with the Census Act, 1948. When the President (i.e. the Union executive) acts, he is only an executive and must ask. Executive delegation needs consent; legislative delegation does not.
2.4 Co-operative Federalism — Articles 261, 262 and 263
Article 261 — Full Faith and Credit
- Full faith and credit shall be given throughout the territory of India to the public acts, records and judicial proceedings of the Union and of every State.
- Parliament by law shall determine the mechanism of proving each of the three mentioned above.
- Under Article 261(3), the final judgement of civil courts shall be capable of execution throughout the territory of India.
Everyday examples: your driving licence issued in Karnataka is valid in Kerala; your Class 10 certificate from one State board is accepted in another; a civil court decree from one State can be executed in another.
Many notes attribute the execution of civil decrees to "Article 361". That is a different provision entirely — Article 361 is the protection of the President and Governors from legal proceedings. The execution of civil court decrees throughout India is Article 261(3). An easy slip in handwritten notes, and an expensive one in Prelims.
Article 262 — Inter-State River Water Disputes
- Parliament by law may provide for adjudication of Inter-State River Water Disputes.
- Such law may exclude the jurisdiction of the Supreme Court or any other court.
Two laws were enacted under Article 262:
- Inter-State River Water Disputes Act, 1956 — Section 11 bars the jurisdiction of the Supreme Court and all other courts. Disputes go to tribunals (Cauvery, Krishna, Ravi–Beas, Mahadayi and others).
- River Boards Act, 1956
- The River Boards Act, 1956 is a dead letter. It empowers the Centre to set up River Boards for regulation and development of inter-State rivers — and not a single River Board has ever been constituted under it. A striking example of a law existing only on paper.
- The Supreme Court's exclusion is not absolute. Section 11 bars the Court's ordinary jurisdiction, but the Supreme Court has entertained Special Leave Petitions under Article 136 against tribunal awards — most famously in the Cauvery matter. So the correct statement is: Article 262 permits Parliament to exclude the courts, and Parliament did — but Article 136, being a constitutional power, survives. A statement saying "the Supreme Court has no role at all in river water disputes" is false.
Article 263 — Inter-State Council
- The President may establish an Inter-State Council to enquire, advise, investigate and recommend on inter-State and Centre–State disputes. Several councils exist on this model — the Central Council for Health and Family Welfare, the Central Council of Local Government. Their reports are recommendatory and not binding on the government.
- In 1990, the President established the Inter-State Council as a recommendatory body headed by the Prime Minister, under Article 263.
The Inter-State Council was set up on 28 May 1990, acting on a recommendation of the Sarkaria Commission. It is chaired by the Prime Minister, with all Chief Ministers, Chief Ministers/Administrators of UTs, and six Union Ministers as members. It is a constitutional body — unlike NITI Aayog, which is an executive body created by a Cabinet resolution in 2015 with no constitutional or statutory basis.
The critique to carry into Mains: the Council has met very rarely — roughly a dozen times in over three decades — despite the Punchhi Commission recommending it meet at least thrice a year. India's premier constitutional forum for cooperative federalism is the one it uses least; the GST Council, a creature of the 101st Amendment, has met far more often.
Pillar 3: Financial Relations (Articles 268–293)
The structural problem in one line: expenditure is done by the States largely, while the revenue sources of the Centre are very high. That mismatch — vertical fiscal imbalance — is what every provision below is trying to fix.
3.1 The Tax Framework — Article 265 and the Levy/Collect/Appropriate Test
Article 265: no tax can be levied except by authority of law. Taxes are then distributed across the lists — Union List (e.g. Income Tax), State List (e.g. excise duty on liquor) and Concurrent List.
The key analytical tool is to separate three different things that candidates habitually merge:
| Stage | What it means | If the tax is in the Union List | If in the State List |
|---|---|---|---|
| LEVY | Rate of tax — who decides it | Centre / Parliament | Respective State Government |
| COLLECT | Implementing agency or the officials | Centre or State, or even both | State |
| ASSIGN / APPROPRIATE | Revenues — how the earnings are distributed between Centre and States | Differs depending on the tax itself — Union alone, Union + States, or States | States |
Who levies a tax, who collects it, and who keeps it can be three different governments. Article 268 is levied by the Centre but collected and kept by the States. Article 269 is levied and collected by the Centre but assigned to the States. Article 270 is levied and collected by the Centre and shared. Article 271 is a surcharge the Centre keeps entirely.
Every Prelims question on 268–271 is testing whether you can separate these three stages. Learn the test, and the table follows.
3.2 Distribution of Taxes Levied by the Centre — Articles 268 to 271
| Article | Collection | Appropriation | Taxes covered |
|---|---|---|---|
| 268 | States | Appropriated by the States. The proceeds of these duties levied within any state do not form a part of the Consolidated Fund of India, but are assigned to that state. | Stamp duties on bills of exchange, cheques, promissory notes, policies of insurance, transfer of shares and others. |
| 269 | Centre | Assigned to the States. The net proceeds do not form a part of the Consolidated Fund of India. They are assigned to the concerned states in accordance with the principles laid down by Parliament. | (i) Taxes on the sale or purchase of goods (other than newspapers) in the course of inter-state trade or commerce. (ii) Taxes on the consignment of goods in the course of inter-state trade or commerce. |
| 269A | Centre | Divided between the Centre and the States in the manner provided by Parliament on the recommendations of the GST Council. Parliament is also authorised to formulate the principles for determining the place of supply, and when a supply takes place in the course of inter-state trade or commerce. | Goods and Services Tax (GST) on supplies in the course of inter-state trade or commerce. |
| 270 | Centre | Distributed between the Centre and the States. The manner of distribution of the net proceeds is prescribed by the President on the recommendation of the Finance Commission. • 'Net proceeds' = proceeds of a tax or duty minus the cost of collection. • Under Article 279, the net proceeds in any area are ascertained and certified by the Comptroller and Auditor-General of India. His certificate is final. |
Includes all taxes and duties referred to in the Union List EXCEPT: (i) duties and taxes referred to in Articles 268, 269 and 269A; (ii) surcharge on taxes and duties referred to in Article 271; (iii) any cess levied for specific purposes. |
| 271 | Centre | The proceeds of such surcharges go to the Centre exclusively. The states have no share in these surcharges. However, GST is exempted from this surcharge — this surcharge cannot be imposed on GST. | Parliament can at any time levy surcharges on taxes and duties referred to in Articles 269 and 270. |
The two amendments that reshaped tax sharing
- The 80th Amendment Act of 2000 was enacted to give effect to the recommendations of the 10th Finance Commission. The Commission recommended that out of the total income obtained from certain central taxes and duties, 29% should go to the states. This is known as the 'Alternative Scheme of Devolution' and came into effect retrospectively from 1 April 1996.
- This amendment brought several central taxes and duties like Corporation Tax and Customs Duties at par with Income Tax (taxes on income other than agricultural income) as far as their constitutionally mandated sharing with the states is concerned.
- The 101st CAA, 2016 introduced GST, and deleted Article 268-A as well as Entry 92-C in the Union List, both dealing with service tax. They had been added by the 88th Constitutional Amendment of 2003.
Look again at Article 270: the divisible pool excludes surcharges (271) and cesses. And Article 271 says surcharge proceeds go to the Centre exclusively.
This creates a structural incentive: every rupee the Centre raises as a cess or surcharge rather than as a shareable tax is a rupee it does not share with the States — no matter what percentage the Finance Commission awards. States argue that the rise of cesses and surcharges has quietly hollowed out the divisible pool, so that a 41% share of a shrinking pool is worth less than it appears.
The 16th Finance Commission has responded by recommending that the Union publish CAG-certified net tax proceeds annually under Article 279 — bringing transparency to exactly this calculation. Notice how Article 279, a dry certification clause, has become a live reform demand.
3.3 State Taxes (Levied, Collected and Assigned to States)
Taxes
- Land revenue
- Agricultural income
- Land and buildings
- Excise on alcoholic liquors
- Consumption or sale of electricity
- Vehicles
- Animals and boats
Non-Tax Revenue
Centre:
- Earnings from CPSEs
- Railways
- Post and Telegraph
States:
- SPSEs
- Irrigation
Excise on alcoholic liquor for human consumption and taxes on the sale of electricity are among the very few buoyant revenue sources States retain outside GST. Petroleum products are constitutionally within GST's ambit but not yet notified for it. Together, liquor and fuel are the last major fiscal levers States control on their own — which is precisely why proposals to bring petroleum into GST meet such resistance from States. This is the practical link between a dry list of entries and every GST Council headline you read.
3.4 Grants — Articles 275, 282 and 273
| Type | Article | Key features |
|---|---|---|
| Statutory Grants | 275 | • Given on the recommendation of the Finance Commission • Given to states by Parliament, by passing a law • Not given to every state → General Grant → the FC decides • Charged expenditure on the Consolidated Fund of India • Also includes specific grants → welfare of STs, or for raising the level of administration of Scheduled Areas |
| Discretionary Grants | 282 | • No parliamentary sanction • Grants given by the executive • Centre can give to states; states can give to fellow states • For any public purpose • The Centre gives states funds to implement Centrally Sponsored Schemes • Made from the Consolidated Fund of India |
| Other Grants | 273 | • To Assam, Bihar, Odisha and West Bengal • In lieu of export duty on jute products • Applicable only for 10 years • 'Charged' on the Consolidated Fund of India • On the recommendation of the Finance Commission |
Read it again: no parliamentary sanction, executive discretion, any public purpose. Article 282 sits in the "Miscellaneous Financial Provisions" and was intended as a minor, residual power. It has instead become the constitutional basis for the entire Centrally Sponsored Scheme architecture — hundreds of thousands of crores routed to States each year, on the Centre's terms, for subjects that are often squarely in the State List (health, agriculture, police modernisation, education).
The Mains argument: the Finance Commission route (Article 275) is formula-based, transparent and untied. The Article 282 route is discretionary, conditional and tied. Every rupee that shifts from the first to the second reduces State autonomy without a single constitutional amendment. "Article 282 is the back door through which the Union entered the State List" — that sentence will earn you marks.
3.5 Restrictions on Parliament's Powers to Protect the States — Article 274
Certain types of Bills, if introduced in Parliament, need the prior recommendation of the President. These are Bills that:
- Impose or vary any tax or duty in which States are interested
- Vary the meaning of the expression 'agricultural income'
- Affect the principles on which moneys are, or may be, distributable to States
- Impose any surcharge on any specified tax or duty for the purpose of the Centre
3.6 Inter-Governmental Immunity — Articles 285 and 289
Technical, and rarely asked directly — but worth two minutes.
- Article 285: any property of the Central Government — land, buildings, shares, companies — cannot be taxed by a State legislature or any authority within the State.
- Article 289: any property of a State Government, and the income of a State, cannot be taxed by Parliament. But if any property of a State Government is utilised for trade or business, or income generation, then such property can be taxed by Parliament.
The Union's immunity under 285 is absolute. The State's immunity under 289 has a trade-or-business exception. So a State-run commercial enterprise can be taxed by the Centre, but a Union commercial enterprise's property cannot be taxed by the State. Another quiet tilt toward the Union — and exactly the kind of contrast a statement-based MCQ is built on.
3.7 Borrowing — Articles 292 and 293
Article 292 — the Centre
The Centre can borrow from domestic and international sources, upon the security of the Consolidated Fund of India, or give guarantees, within the limits prescribed by Parliament by law.
The catch: no such law has yet been passed by Parliament that regulates or imposes any upper limit. The constitutional ceiling on Union borrowing exists in theory and has never been enacted.
Article 293 — the States
States can borrow within India only — and not from abroad, upon the security of the Consolidated Fund of the State, or give guarantees for loans raised by the State Government, within limits set by the State legislature.
Article 293(3): if a State has taken a loan from the Centre, or the Centre has given a guarantee, then no fresh loan without the Centre's consent. Article 293(4): that consent may be granted subject to such conditions as the Centre thinks fit.
The last line of your notes has become the biggest question in Indian fiscal federalism.
- December 2023: Kerala filed an Original Suit under Article 131 against the Union, challenging the FRBM Amendment Act of 2018 and the Union's letters imposing a Net Borrowing Ceiling (NBC) — capping Kerala's total borrowing from all sources at ₹32,442 crore.
- Kerala's argument: the words "any loan" in Article 293(3) mean only loans from the Union — so the Centre cannot control a State's market borrowing. It also argued that "Public Debt of the State" is Entry 43 of the State List.
- The Union's argument: fiscal health is a national concern; a State's over-borrowing raises borrowing costs for everyone, and the Union borrows abroad to on-lend to States.
- 1 April 2024 — State of Kerala v. Union of India: Justices Surya Kant and K.V. Viswanathan refused interim relief (Kerala failed the triple test of prima facie case, balance of convenience and irreparable injury), holding that "monetary damage caused by the State's own financial mismanagement" was not an irreparable loss, and that relief would set a bad precedent enabling other States to flout fiscal policies.
- Crucially, the Bench observed that Article 293 has NEVER been authoritatively interpreted by the Supreme Court — in seventy-four years — and referred the matter to a five-judge Constitution Bench under Article 145(3).
Questions referred: Does Article 293 confer an enforceable right on States to borrow? How far can the Union regulate borrowing beyond loans it has itself made? Can borrowing by State-owned enterprises and liabilities from the Public Account be counted under 293(3)? What is the scope of judicial review over fiscal policy?
Whichever way it goes, this will be the most important fiscal federalism judgment since Bommai was the most important political one. Borrowing — not taxation — is now the front line.
3.8 The Finance Commission — Article 280 and the 16th FC Award (Live)
The Finance Commission is the constitutional body the President constitutes every five years under Article 280 to recommend the distribution of the net proceeds of taxes between the Union and the States (vertical devolution), the allocation among States (horizontal devolution), and the principles governing grants-in-aid under Article 275.
Vertical devolution — 41%, unchanged
- The states' share in the divisible pool stays at 41% — the same as the 15th Finance Commission.
- The divisible pool excludes cesses, surcharges and the cost of collection from the Centre's gross tax revenue.
- 18 states — including Kerala, Odisha, Haryana, Gujarat and Tamil Nadu — had demanded an increase to 50%. It was not accepted.
- The Union had sought "moderation in tax devolution", arguing that 49% of gross revenue receipts already flow to the states and that more "is not fiscally sustainable".
14th FC (2015–20): 32% → 42%, a watershed increase. 15th FC: 41%, marginally reduced to account for the creation of Jammu & Kashmir and Ladakh as Union Territories. 16th FC: 41% retained, despite 18 of 28 states demanding 50%. The Centre's position is that 41% is already a historic high.
Horizontal devolution — a new criterion changes the politics
| Criterion | Weight | How the 16th FC defines it |
|---|---|---|
| Income Distance | 42.5% | Gap between a state's per capita GSDP and the average of the top three large states by per capita GSDP. Computed as an average over 2018–19 to 2023–24, excluding the pandemic year 2020–21. Lower per capita GSDP → higher share. |
| Population (2011 Census) | 17.5% | Share in India's population as per the 2011 Census. |
| Demographic Performance | 10% | Redefined — now based on population growth between 1971 and 2011, instead of the 15th FC's Total Fertility Rate. |
| Area | 10% | Geographical area of the state. |
| Forest & Ecology | 10% | Share of dense forest. |
| Contribution to GDP | 10% | NEW. Computed as the square root of a state's GSDP divided by the sum of the square roots of all states' GSDPs. Rewards economically stronger states. |
| Tax & Fiscal Effort | Removed | The 15th FC's 2.5% weight for this has been dropped and replaced by Contribution to GDP. |
Grants, fiscal roadmap and reforms
- Total grants: ₹9.47 lakh crore over five years — local bodies ₹8 lakh crore (rural ₹4.4 lakh cr, urban ₹3.6 lakh cr) and disaster management ₹2.04 lakh crore.
- Discontinued: revenue deficit grants, sector-specific grants and state-specific grants — all three recommended by the 15th FC.
- New urban grants: Special Infrastructure Grants (₹56,100 crore) for wastewater management in cities of 10–40 lakh population, and a Urbanisation Premium Grant (₹10,000 crore).
- Local body grants are 80% basic / 20% performance-based, released only on three entry-level criteria: constitution of local bodies as per the Constitution, public disclosure of audited accounts, and timely formation of the State Finance Commission.
- Fiscal roadmap: the Centre to cut its fiscal deficit to 3.5% of GDP by 2030–31; states capped at 3% of GSDP; off-budget borrowings to be strictly discontinued and brought on-budget. Combined Centre–State debt projected to fall from 77.3% of GDP (2026–27) to 73.1% (2030–31).
- Power sector: states urged to privatise DISCOMs, with legacy debt parked in a Special Purpose Vehicle; funds from the Special Assistance Scheme for Capital Investment usable only after privatisation.
- Subsidies: rationalise, especially unconditional cash transfers — now 20.2% of subsidy spending (2025–26), up from 3% in 2018–19.
- PSEs: close 308 inactive State PSEs; review loss-making enterprises (loss-making in 3 of 4 years) for closure or privatisation.
- Transparency: the Union should publish CAG-certified net tax proceeds annually under Article 279.
The 16th Finance Commission marks a shift from "entitlement-based" transfers to "compliance-driven" fiscal federalism — tying money to performance, discipline and transparency rather than need alone.
The critique: the new 10% weight for Contribution to GDP rewards richer states while discontinuing revenue deficit grants removes a cushion for poorer ones — cutting against the equalisation principle that has anchored Indian devolution since 1950. Combined with the shrinking share of untied funds and the cess-and-surcharge loophole, states argue their fiscal autonomy is narrowing even as the headline stays at 41%. Balanced conclusion: cooperative federalism needs stronger equalisation, not merely stronger conditionality.
Recent Flashpoints in Centre–State Relations (2022–2026)
Every one of these maps onto an Article above. Use them as ready-made examples.
| Development | Article engaged | What it settled — or opened |
|---|---|---|
| Presidential Reference opinion, 20 Nov 2025 (2025 INSC 1333) | 200, 201, 143, 142 | Courts cannot impose timelines; "deemed assent" is alien to the Constitution; but Governors cannot delay indefinitely. Remedy = limited mandamus. |
| 16th Finance Commission award, live from 1 Apr 2026 | 280, 270, 275 | Devolution 41%; new Contribution to GDP (10%) criterion; revenue deficit grants discontinued. |
| State of Kerala v. Union of India — referred to a Constitution Bench, 1 Apr 2024 | 293, 131 | Can the Union cap a state's market borrowing? Article 293 has never been authoritatively interpreted. Pending. |
| Union of India v. Mohit Minerals, May 2022 | 246A, 279A | GST Council recommendations are recommendatory, not binding. Both Union and states have simultaneous power. |
| Jallikattu Constitution Bench, 18 May 2023 | 254(2) | Upheld the Tamil Nadu amendment to the PCA Act, 1960. Article 254(2) is a working route for states to carve exceptions from Central law. |
| Delhi services dispute, 2023 | 239AA, 246 | The Supreme Court gave the elected Delhi government control over services (May 2023); Parliament then legislated to restore the Union's role. Asymmetric federalism in real time. |
| Demand to move Water to the Concurrent List | 246, Entry 17 | Ongoing. The 42nd CAA's transfer of Forests is the precedent both sides invoke. |
Exam Value Addition: Prelims & Mains
Prelims rapid-fire
| Question | Answer |
|---|---|
| Three pillars & their Parts | Legislative 245–255 and Administrative 256–263 — both Part XI; Financial 268–293 — Part XII |
| Judicial relations | No such chapter — India has an integrated judiciary |
| Extra-territorial legislation | Permitted, but GVK Industries (2011) requires a nexus with India |
| Fifth vs Sixth Schedule direction power | 5th: Governor. 6th: Governor for Assam; President for Meghalaya, Tripura, Mizoram |
| List entries (1950 → now) | Union 97 → 98 · State 66 → 59 · Concurrent 47 → 52 |
| 42nd CAA, 1976 — five subjects moved to Concurrent | Education · Forests · Prevention of cruelty to animals · Weights & Measures · Administration of Justice (except SC and HC) |
| Residuary power | Article 248 + Entry 97, Union List — with Parliament. 248(2) includes residuary taxation |
| Article 249 | RS resolution, 2/3rd present and voting, national interest; 1 year, renewable; law dies 6 months after resolution ends |
| Article 250 | During National Emergency; law dies 6 months after emergency ends |
| Article 251 | Under 249 & 250, state's power is INTACT; on incompatibility, Union law prevails |
| Article 252 | Two or more states resolve; = surrender of power; only Parliament can repeal/amend |
| Article 253 | International treaty — no expiry. UN Privileges & Immunities Act 1947, Geneva Convention Act 1960, Anti-Hijacking Act 1982, Environment Protection Act 1986, TRIPS |
| Law made under 356 vs 250 | 356: survives the emergency (state may repeal). 250: dies automatically after 6 months |
| Article 254(2) | State law reserved for and assented to by the President prevails — but Parliament can override later. Jallikattu |
| Article 246A | 101st CAA, 2016; non-obstante to 246 & 254; Parliament exclusive on inter-State GST |
| Article 255 | Missing prior recommendation is cured by assent — the Act is not invalid on that ground alone |
| Three doctrines | Pith & Substance (Balsara 1951) · Colourable Legislation (Gajapati Narayan Deo 1953) · Harmonious Construction (Calcutta Gas 1962) |
| Executive power | NOT defined. Union: Art. 73; States: Art. 162 |
| Four direction matters | Communications (257) · Railways (257) · ST welfare schemes (339(2)) · Primary education in mother tongue (350A) |
| Disobedience chain | 256/257 → 365 (deemed failure) → 356 (President's Rule) |
| Delegation consent rule | 258(1) President → State: consent NEEDED. 258(2) Parliament by law: consent NOT needed (Census Act, 1948). 258A (7th CAA, 1956): Governor → Centre |
| Article 261(3) | Civil court decrees executable throughout India — not Article 361 |
| Article 262 | ISRWD Act 1956 (s.11 bars courts) & River Boards Act 1956 (no board ever constituted). SC still hears Art. 136 SLPs |
| Inter-State Council | Article 263; established 1990 on Sarkaria recommendation; headed by PM; recommendatory; a constitutional body (NITI Aayog is executive) |
| Article 265 | No tax except by authority of law |
| 268 / 269 / 269A / 270 / 271 | 268 collected & kept by States (stamp duties) · 269 assigned to States (inter-state sale/consignment) · 269A inter-state GST, split per GST Council · 270 shared per Finance Commission · 271 surcharge, Centre exclusively, GST exempt |
| 'Net proceeds' & Article 279 | Proceeds minus cost of collection; certified by the CAG; his certificate is final |
| Divisible pool excludes | Cesses, surcharges and cost of collection |
| 80th CAA, 2000 | 10th FC's 'Alternative Scheme of Devolution'; 29% to states; retrospective from 1 April 1996 |
| 101st CAA, 2016 | GST; deleted Art. 268-A and Entry 92-C (service tax, added by the 88th CAA, 2003) |
| Grants: 275 / 282 / 273 | 275 statutory, on FC recommendation, by law, charged · 282 discretionary, no parliamentary sanction, CSS · 273 jute — Assam, Bihar, Odisha, WB, 10 years |
| Article 274 | Bills affecting state tax interests, 'agricultural income', distribution principles, or surcharge for the Centre need the President's prior recommendation |
| 285 vs 289 | 285: Union property not taxable by States (absolute). 289: State property/income not taxable by the Union — except for trade or business |
| 292 vs 293 | 292: Centre — domestic and international; no limiting law ever passed. 293: States — within India only; 293(3) Centre's consent if indebted; 293(4) consent may carry conditions |
| 16th FC (2026–31) | Chair Arvind Panagariya; tabled 1 Feb 2026; 41%; new Contribution to GDP (10%); revenue deficit grants discontinued |
Practice MCQs
Q1 — Parliament's power over the State List
Consider the following statements:
- A resolution under Article 249 must be passed by the Rajya Sabha by a majority of not less than two-thirds of the members present and voting.
- A law made by Parliament under Article 250 ceases to operate six months after the Proclamation of Emergency ceases.
- Where a law is made under Article 252, the State legislature may subsequently amend or repeal it.
Which of the statements given above is/are correct?
- 1 and 2 only
- 2 and 3 only
- 1 and 3 only
- 1, 2 and 3
Q2 — Distribution of taxes
With reference to the distribution of tax revenues, consider the following:
- The proceeds of duties under Article 268 do not form part of the Consolidated Fund of India.
- Surcharges levied under Article 271 form part of the divisible pool shared with the States.
- The net proceeds of a tax under Article 270 are ascertained and certified by the Comptroller and Auditor-General, whose certificate is final.
Which of the statements given above is/are correct?
- 1 only
- 1 and 3 only
- 2 and 3 only
- 1, 2 and 3
Q3 — Administrative relations and delegation
Consider the following statements:
- Under Article 258, Parliament may by law confer powers on a State, and the consent of that State is not required.
- Article 258A permits a State to entrust functions to the Union with the Union's consent.
- If a State fails to comply with a direction of the Union, the President may hold under Article 365 that the government of the State cannot be carried on in accordance with the Constitution.
Which of the statements given above is/are correct?
- 1 and 2 only
- 2 and 3 only
- 1 and 3 only
- 1, 2 and 3
Q4 — Recent developments
Which one of the following statements is correct?
- The 16th Finance Commission increased the states' share in the divisible pool from 41% to 50%.
- The Supreme Court has held that the recommendations of the GST Council are binding on the Union and the States.
- The 16th Finance Commission introduced "Contribution to GDP" as a criterion for horizontal devolution and discontinued revenue deficit grants.
- The Supreme Court has authoritatively interpreted Article 293 and upheld the Union's power to impose a Net Borrowing Ceiling on States.
Mains practice questions
- "The Indian Constitution centralises legislative power while decentralising administrative responsibility." Examine this asymmetry with reference to Articles 73, 162, 256 and 257. (15 marks, 250 words — GS2)
- Discuss the doctrines of Pith and Substance, Colourable Legislation and Harmonious Construction with reference to the interpretation of legislative entries. (15 marks, 250 words — GS2)
- "Article 282 is the back door through which the Union entered the State List." Critically examine the constitutional basis of Centrally Sponsored Schemes. (15 marks, 250 words — GS2)
- The Supreme Court's opinion in the Presidential Reference of 2025 clarified the law on gubernatorial assent but did not solve the problem that prompted it. Critically analyse. (15 marks, 250 words — GS2)
- Evaluate the recommendations of the 16th Finance Commission. Does the shift from entitlement-based to compliance-driven transfers strengthen or weaken cooperative federalism? (15 marks, 250 words — GS2)
- "Borrowing, not taxation, is the new front in India's fiscal federalism." Discuss in the light of Article 293 and the pending Kerala case. (10 marks, 150 words — GS2/GS3)
- Emergency provisions: Article 250 (National Emergency → State List) · Article 356 (President's Rule → State List) · S.R. Bommai (1994) · Article 365.
- Commissions: Sarkaria (1983) → Inter-State Council (1990) · Punchhi (2010) → Governor's office, localised emergency · NCRWC (2002).
- Fiscal: Article 280 (FC) · Article 279A (GST Council) · FRBM Act, 2003 · Article 293 (borrowing) · the cess-and-surcharge debate.
- Asymmetric federalism: Articles 239AA (Delhi) · 371 series · Fifth and Sixth Schedules.
- Essay: "Federalism is a matter of trust, not of text"; "Cooperation cannot be commanded"; "Who pays the piper calls the tune".
Conclusion
Centre–State relations look, on paper, like a settled architecture: three pillars, ninety-odd Articles, three lists. In practice the architecture has been quietly rebuilt around its own edges. Article 282, a residual grant-making power, now carries the Centrally Sponsored Scheme system. Article 271, a technical surcharge clause, decides how much a 41% devolution is actually worth. Article 293, unread for seventy-four years, is now the biggest question before a Constitution Bench. And Article 200, three lines about assent, produced a Presidential Reference and a five-judge opinion within seven months.
The text has barely changed. The balance has changed enormously. That gap between the written Constitution and the working one is what an examiner is testing when they ask about Indian federalism — and it is why memorising the Articles is necessary but never sufficient.
Frequently Asked Questions
What are the three types of Centre-State relations in the Indian Constitution?
How can Parliament make laws on State List subjects?
What did the Supreme Court decide about Governors and Bills in 2025?
What is the states' share of taxes under the 16th Finance Commission?
Are GST Council recommendations binding on States?
Can States borrow from foreign sources?
Which subjects did the 42nd Amendment move from the State List to the Concurrent List?
Key Takeaways
- Three pillars: Legislative (245–255) and Administrative (256–263) both sit in Part XI; Financial (268–293) sits in Part XII. There is no judicial-relations chapter because India has an integrated judiciary. India uses three lists with residuary power to the Union — against one list in the USA and Australia, and two in Canada.
- Parliament's five gateways into the State List: 249 (RS resolution, 2/3rd present and voting, 1 year) · 250 (National Emergency) · 252 (two or more States — a surrender; only Parliament can repeal) · 253 (international treaty — widest, no expiry) · 356 (President's Rule — law survives, unlike 250 where it dies in 6 months). Under 251, States keep their power but the Union law prevails.
- Administrative relations in one line: "centralization in legislative powers, decentralization in administrative powers." Executive power is undefined — Union under Art. 73, States under Art. 162. Federal supremacy is real because of the chain 256/257 → 365 → 356. Delegation runs both ways: 258 down (Parliament needs no State consent — Census Act, 1948) and 258A up (7th CAA, 1956).
- Financial relations turn on Levy / Collect / Appropriate: 268 collected and kept by States · 269 assigned to States · 269A inter-State GST via the GST Council · 270 shared via the Finance Commission, with 'net proceeds' CAG-certified under Art. 279 · 271 surcharge kept by the Centre exclusively (GST exempt). The divisible pool excludes cesses and surcharges — the states' core grievance.
- Three verified 2024–26 updates: ① The 16th FC award is live since 1 April 2026 — devolution held at 41% (18 states wanted 50%), a new 10% Contribution-to-GDP criterion, and revenue deficit grants discontinued. ② The Presidential Reference opinion (20 Nov 2025, 2025 INSC 1333) — courts cannot set timelines and "deemed assent" is alien to the Constitution, but Governors cannot delay indefinitely. ③ State of Kerala v. Union — Article 293 has never been authoritatively interpreted and is now before a Constitution Bench.
- The analytical thesis: the text has barely changed; the balance has changed enormously. Article 282 — a residual, discretionary, no-parliamentary-sanction grant power — became the constitutional basis for the entire Centrally Sponsored Scheme architecture over State List subjects. Article 271 decides what 41% is really worth. Federalism in India is renegotiated by Finance Commissions, GST Councils and Governors — not by amendments.
