6th State Finance Commission proposes bigger tax share, new income sources for local bodies in Maharashtra

The profession tax collection powers were transferred to the state government under the Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975. The report has recommended transferring these powers back to local bodies.

It has recommended to give Zilla Parishads a 4 per cent share of Motor Vehicle Tax collections for district roads, allowing local bodies to lease public land and properties for up to 30 years, and levying an additional 10 per cent cess on the premium collected when agricultural land is converted for residential, commercial and industrial use, commonly called NA premium.

According to the report, Maharashtra currently transfers around Rs 96,733 crore, equivalent to 26.3 per cent of the state’s own tax collections, to urban and rural local bodies through grants and compensation mechanisms. However, local bodies continue to face an annual funding gap of Rs 8,217 crore, equivalent to 3.6 per cent of the state’s average State Own Tax Revenue (SOTR).

The Commission has hence recommended increasing the share of state taxes transferred to local bodies to 27.3 per cent during the 2026-31 award period.

The report estimates that assigning profession tax to local bodies could generate resources equivalent to 0.8 per cent of SOTR, a share in Motor Vehicle Tax another 0.6 per cent, and improvements in local tax collection 1.2 per cent, while the remaining 1 per cent of SOTR would need to come through additional transfers from the state government.

It has also recommended earmarking 4 per cent of Motor Vehicle Tax collections as road grants for Zilla Parishads. Urban local bodies currently receive 10 per cent of Motor Vehicle Tax collections as road grants, while rural local bodies receive no such share despite maintaining district roads.

The report has proposed a 10% cess on the premium collected when agricultural land is converted for non-agricultural use, with the amount to be transferred to the municipality or gram panchayat where the development takes place.

Municipalities and panchayats have also been proposed to be allowed to lease public land, markets, commercial complexes, parking lots and other properties for up to 30 years.

The recommendations would apply to all urban local bodies, including the Brihanmumbai Municipal Corporation (BMC), Thane, Navi Mumbai, Pune, Nashik and Nagpur municipal corporations, and villages on the outskirts of these cities that are witnessing rapid urban expansion.

The report has also recommended setting up the Maharashtra Municipal Property Tax Board, GIS mapping of properties, assigning a Unique Property ID to every property and extending drone surveys beyond gaothan areas to bring more properties into the tax net.

It has also recommended shifting urban local bodies to the Capital Value system of property taxation, the model currently followed by the BMC where tax is linked to the value of the property.

Other recommendations include a larger share for local bodies in additional stamp duty collections, recovered traffic challans and disaster mitigation funds, formula-based distribution of District Planning Committee funds and a Rural-Urban Transition Policy for villages around cities that increasingly resemble towns but continue to be governed as villages.

Maharashtra’s population is projected to touch 129.3 million in 2026, including 63.8 million people living in urban areas.