No reduction in State’s share in tax devolution, says Finance Minister

Finance Minister Nirmala Sitharaman on Wednesday (February 11, 2026) dismissed allegations by Opposition members that the Centre was not transferring 41% of the divisible pool of taxes to the States, as mandated by the 15th Finance Commission, asserting that the required transfers were made every year.

The 15th Finance Commission had recommended that for the period 2020-26, the Centre should transfer 41% of its divisible pool of taxes to the States, which the Centre had accepted.

“Often, we are accused of not transferring the 41% that the 15th Finance Commission has recommended,” Ms. Sitharaman said in the Lok Sabha, during her reply to the debate on Union Budget 2026. “I assure you, it is 41% that we have transferred to the States. We have not reduced any State’s devolvable tax.” 

Growth in transfers

The Minister said that the total resources to be transferred to the States, including the devolution and under centrally sponsored schemes, is estimated at ₹25.44 lakh crore for 2026-27.

“This entails an increase of ₹2.7 lakh crore over 2025-26 and is ₹3.78 lakh crore more than the actuals of 2024-25,” she said.

“The 16th Finance Commission analysed the States’ share transferred by the Centre to the States from 2018-19 to 2022-23 and concluded that in each of these years, the devolution made by the Centre exactly matches the recommendation of the 15th Finance Commission,” Ms. Sitharaman added.

Devolution pool

She said that it is the Comptroller and Auditor General (CAG) that audits the Centre’s finances and decides what the net proceeds of the Centre are, after subtracting from the gross tax receipts the cesses and surcharges collected by the Centre. 

“Out of that, have we transferred 41% of the divisible pool, that is what should be looked at, not the gross tax revenue,” Ms. Sitharaman said. “The Constitution gives the Centre the authority to collect cesses and surcharges.”

She further sought to counter charges levelled by Opposition members that the Centre was shrinking the divisible pool of taxes by focusing more on cesses and surcharges, which the States cannot gain from. 

“The cesses and surcharges are collected for a particular purpose such as health cess, education cess, road cess,” Ms. Sitharaman said. “These do not benefit the Centre, they go to the States in terms of building schools, hospitals, roads in the States.”

Medium-term Budget

The Finance Minister explained why the Union Budget 2026 included several announcements that were aimed at the medium and long term. 

“This Budget has been prepared as the first Budget in the second quarter of the 21st century,” she said. “So, this Budget covers a lot of issues from 2026 to 2050. We are also starting the new five-year cycle of the new Finance Commission and therefore the estimates are largely on the recommendations of the 16th Finance Commission,” she said.

“By doing these [longer term announcements], which are leading us towards the medium and long term, we are also continuing our push in building infrastructure,” she said. “It is not just roads and national highways, we are also looking at waterways so that the cost of logistics can come down and States that are in the hinterland will have the advantage of moving goods faster at a lesser cost.”