16th Finance Commission: Majority States Seek To Increase Tax-Revenue Share To 50%, Say Sources

The 16th Finance Commission has received recommendations from 21 states seeking an increase in tax revenue share to 50% from the current 41%, according to people familiar with the matter.

The commission, led by economist Arvind Panagariya, is still awaiting the Centre’s recommendations on tax revenue sharing, the people said.

It is 'premature' to decide on the final revenue-sharing model between the Centre and states, top officials told NDTV Profit on the condition of anonymity, adding that the panel expects to receive fiscal projections from states in March. It is also collating data on state expenditures to assess fiscal deficits.

The Centre had previously sought a reduction in revenue sharing during the 15th Finance Commission’s term. The 16th Finance Commission is set to submit its final report by Oct. 31, with its recommendations to be implemented from the fiscal 2026-27.

The finance commission, a constitutional body, is constituted every five years. It determines the distribution ratio of tax revenue between the Centre and states. Currently, states receive 41% of the tax pool in 14 instalments each year, an arrangement set to continue until 2026.

In September, five Opposition-ruled states—Kerala, Karnataka, Tamil Nadu, Punjab, and Telangana—demanded a higher allocation from the divisible tax pool. They raised this issue at a conclave of finance ministers organised by the Kerala government.

Kerala Chief Minister Pinarayi Vijayan had then called for the 16th Finance Commission to increase the states’ share from 41% to 50%. He argued that this revision is necessary due to surcharges and cesses imposed by the Centre.