Indian Constitution has made elaborate provisions, relating to the distribution of the taxes as well as non-tax revenues and the power of borrowing, supplemented by provisions for grants-in-aid by the Union to the States. Article 268 to 293 deals with the provisions of financial relations between Centre and States.
The Constitution divides the taxing powers between the Centre and the states as follows:
- The Parliament has exclusive power to levy taxes on subjects enumerated in the Union List,
- the state legislature has exclusive power to levy taxes on subjects enumerated in the State List,
- both can levy taxes on the subjects enumerated in Concurrent List whereas residuary power of taxation lies with Parliament only.