Budget 2021: 15th Finance Commission report recommends 42 per cent share for states

New Delhi, Feb 02: In a recent development, the 15th Finance Commission has recommended that states, along with Ladakh and Jammu and Kashmir, be given 42 percent share in the divisible tax pool of the centre during the period 2021-22 to 2025-26.

It is reportedly said that the panel provides a range for fiscal deficit and debt path of both the union and states. It further recommended additional borrowing room to states based on performance in power sector reforms.

Excluding Ladakh and Jammu and Kashmir, the tax devolution share suggested by the Finance Commission is 41 per cent of the total divisible pool, which is arrived at after deducting cesses and surcharges and cost of collection from total tax collection.

Finance Commission is a constitutional body that gives suggestions on centre-state financial relations. The report of the 15th Finance Commission was tabled in Lok Sabha by Finance Minister Nirmala Sitharaman.

In order to maintain predictability and stability of resources, especially during the pandemic, the 15th Finance Commission has recommended "maintaining the vertical devolution at 41 percent - the same as in our report for 2020-21," an official statement said.

"It is at the same level of 42 percent of the divisible pool as recommended by the 14th Finance Commission," the statement said, adding that, however, a required adjustment has been made of "about 1 percent due to the changed status of the erstwhile state of Jammu and Kashmir into the new union territories of Ladakh and Jammu and Kashmir".

The fiscal deficit should be 6 percent in 2021-22, 5.5 per cent in 2022-23, 5 per cent in 2023-24, 4.5 per cent in 2024-25, and 4 per cent in 2025-26.

Addressing a press conference post the budget session, Sitharaman said the tax devolution share was brought to 41 per cent even this year after Jammu and Kashmir and Ladakh was formed.

"When the state becomes a UT, the funding of the UT is with the centre. So, 42 percent was brought down to 41 percent; and to that extent because it was recognised as a union territory. The centre has been given the responsibility to fund it," she said.

The panel, headed by former bureaucrat NK Singh, had in November last year submitted its report titled "Finance Commission in COVID Times" to President Ram Nath Kovind.

The gross tax revenue for a five-year period is expected to be Rs 135.2 lakh crore. Out of that, divisible pool is estimated to be Rs 103 lakh crore, as per the commission.