16th Finance Commission: Higher tax share for south states, Hindi heartland states see dip

According to data compiled by The Indian Express, the five southern states will receive an additional Rs 18,330 crore on account of the higher allocation from the total divisible tax pool of Rs 15.26 lakh crore in 2026-27, as compared to their share recommended by the 15th Finance Commission.

Just ahead of her Budget speech, Finance Minister Nirmala Sitharaman said the government had accepted the recommendations of the 16th Finance Commission. The Commission has recommended to retain the States’ share at 41 per cent of the net proceeds (divisible pool) ofUnion taxes. But the horizontal devolution — of resources among states — has changed with southern states making small gains.

On the other hand, the five Hindi heartland states will see an aggregate decline of Rs 17,338.28 crore as compared to their previous share.

Among the southern states, Karnataka’s share has gone up from 3.64 per cent to 4.13 per cent; Kerala from 1.92 per cent to 2.38 per cent; Andhra Pradesh from 4.04 per cent to 4.21 per cent; Telangana from 2.10 per cent to 2.17 per cent; and Tamil Nadu from 4.07 per cent to 4.09 per cent (see chart). Tamil Nadu and Kerala are headed for Assembly polls this year.

Among the Hindi heartland states, Madhya Pradesh will see the biggest decline, from 7.85 per cent to 7.35 per cent.

Besides the five southern states, the others which are set to benefit from the 16th Finance Commission’s recommendations are Gujarat, Haryana, Punjab, Assam, Maharashtra, Himachal Pradesh, Mizoram, Jharkhand and Uttarakhand.

Among the other states which are set to see a decline are Goa, Sikkim, Tripura, Nagaland, Manipur, Odisha, Meghalaya, West Bengal and Arunachal Pradesh.

The change in the states’ share is due to a change in formula adopted by the 16th Finance Commission, based on six criteria, including some new ones: population (17.5 per cent weight), demographic performance (10 per cent), area (10 per cent), forest (10 per cent), per capita GSDP distance (42.5 per cent) and contributions to GDP (10 per cent).

The six criteria adopted by the 15th Finance Commission were: population (weight 15 per cent), area (15 per cent), forest and ecology (10 per cent), income distance (45 per cent), tax and fiscal efforts (2.5 per cent) and demographic performance (12.5 per cent).

The report of the 16th Finance Commission was tabled by Finance Minister Nirmala Sitharaman in Lok Sabha on Sunday. Accepting the key recommendations of the report, Sitharaman provided details on state-wise share in the net proceeds of Union taxes and duties for the year 2026-27.