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Saturday, February 27, 2021

Budget 2021: Tax devolution to states at 41%, non-lapsable fund for defence to be set up

The government also allowed a normal ceiling of net borrowing for the states at 4 per cent of GSDP for the year 2021-22.

Written by Pranav Mukul | New Delhi |
February 2, 2021 2:38:06 am
15th Finance Commission Chairman NK Singh. (Express file)

The Central Government has accepted a number of key recommendations issued by the 15th Finance Commission, including sharing 41 per cent of the net proceeds of the Union taxes with the states, the creation of a non-lapsable fund for defence in the public account of India, and undertaking a detailed exercise to rationalise and bring down the number of centrally sponsored schemes.

With regard to the sharing of Union taxes, the 15th Finance Commission had recommended that 41 per cent of the taxes collected by the Centre be shared with the states, compared to the present 42 per cent. “The Commission felt that financial resources equivalent to 1% of the net proceeds of Union taxes should be retained with the Central Government for financing the requirements of the newly formed Union Territories of Jammu & Kashmir and Ladakh,” according to the Action Taken Report on the Commission’s recommendations, tabled in Parliament by Finance Minister Nirmala Sitharaman.

The Finance Commission’s report was submitted to the President on November 9, 2020.

NK Singh, the 15th Finance Commission’s Chairman said that most of the recommendations have been accepted by the government. He said that the government has also accepted recommendations relating to having an extra fiscal space for states as well as to have a new group to examine Centre and state’s fiscal trajectory.

The government also allowed a normal ceiling of net borrowing for the states at 4 per cent of GSDP for the year 2021-22. “A portion of this ceiling will be earmarked to be spent on incremental capital expenditure. Additional borrowing ceiling of 0.5% of GSDP will also be provided subject to conditions. States will be expected to reach a fiscal deficit of 3 per cent of GSDP by 2023-24, as recommended by the 15th Finance Commission,” Sitharaman said during the Budget Speech.

Further, creation of the non-lapsable defence fund – the Modernisation Fund for Defence and Internal Security – for the first time will enable the Union government to set aside resources for the special funding mechanism to bridge the gap between projected budgetary requirements and budget allocation for defence and internal security. “Total indicative size of the proposed MFDIS over the five-year period will be Rs 2,38,354 crore. Of this amount, the Commission has recommended that a total of Rs 1,53,354 crore shall be transferred to the MFDIS from the Consolidated Fund of India over the award period of the Commission,” the action taken report, noted.

“On the recommendation of the Fifteenth Finance Commission, we have undertaken a detailed exercise to rationalise and bring down the number of Centrally Sponsored Schemes. This will enable consolidation of outlays for better impact,” she added.

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