Disparity in Tax Contributions: Seven States Exceed Their Devolution Share

Seven States contribute a higher share in total tax collections in the country than their share in what they get back from the Centre as devolution, an analysis of data shared by the government in Parliament shows.

The data shared by the Ministry of Finance to the Rajya Sabha in a reply shows that Uttar Pradesh accounted for 4.6% of the total tax collected in the country between 2020-21 and 2024-25, but received 15.8% of the taxes shared by the Centre during this period. 

An analysis by The Hindu shows that while Uttar Pradesh had the highest positive difference, where the share in devolution exceeded the share in taxes collected, Maharashtra had the biggest negative difference, where the share in taxes collected exceeded the share in devolution.

Maharashtra contributed 36.1% of total revenue but received 6.65% of the Centre’s tax devolution in the period 2020-21 and 2024-25. 

These figures are of particular relevance now because the Sixteenth Finance Commission, tasked with deciding the devolution formula for the period 2026-31, last month submitted its recommendations to the government. That is, a new devolution formula will come into effect from April 1, 2026.

The Centre clarified that the amount of devolution that each State has so far received has been in line with the recommendations of the 15th Finance Commission. 

The Ministry of Finance also clarified that States’ contributions to central taxes is not a criteria taken into account by the 15th Finance Commission when it came up with its devolution formula for the period 2020-21 to 2025-26. 

“Devolution to States during the last five financial years was based on the inter-se percentage worked out by the 15th Finance Commission on the basis of six criteria — population, area, income distance, demographic performance, forest & ecology and tax & fiscal efforts. Contribution to the Central Exchequer was not adopted by the 15th FC as a criterion,” Minister of State for Finance Panka Chaudhary said in his reply.

The other States with negative differences include Karnataka, whose share in total taxes collected exceeded its share in devolutions by 8.8 percentage points, Haryana (4.3 pps), Gujarat (3.5 pps), Tamil Nadu (2.95 pps), Telangana (1.4 pps) and Goa (0.04 pps).

On the other hand, Bihar’s share in devolution exceeded its contribution to total taxes by 8 pps, Madhya Pradesh’s by 5.5 pps, and Rajasthan by 3.55 pps.