Simple explanation
States earn through their own taxes, non-tax revenue, share in central taxes, grants from the Centre and borrowings.
Important own sources include State GST, excise on alcohol, stamp duty, road tax, electricity duty, mining royalties, fees and user charges.
Real-life Indian example
When someone registers property, pays road tax for a car, or buys alcohol, a significant part can become state revenue.
Visual flow
Key terms
- Divisible Pool: Central taxes that are shared with states as recommended by the Finance Commission.
- Finance Commission: A constitutional body that recommends how tax revenue and grants are shared with states.
- State Excise: A state tax commonly applied to alcohol production and sale.
- Stamp Duty: A state levy paid on legal documents such as property registration.
Common confusion
- Borrowing is not income; it must be repaid.
- Central grants may be tied to schemes.
- A richer state usually has a stronger tax base.
Why this matters
Revenue decides how much a state can spend without increasing debt.
Mini quiz
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