Journal Press India^®

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A federal set up creates a multiple polity based on divided functions and powers among central, state and local governments. This paper explains the principal theoretical issues involved in financial relations between different layers of the government in a federal set up. It looks at the distribution of taxation powers between the Centre and state governments. It also outlines the special provisions with respect to Goods and Services Tax and sharing of Central taxes. The distribution of taxation powers between the Centre and the States is meant to minimise tax problems in a federal set up such as double taxation, tax rivalry among States, duplicate tax administration, and tax evasion. Constitutional division of taxation powers between the Union and the States in India rests on economic and administrative considerations, which are examined in this paper.

Keywords

Constitutional provisions; Federal economy; Tax sharing; Goods and Services tax (GST).

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