Centre Doubles Tax Devolution to States ₹1.39 Lakh Crore Released
On June 2, 2025, the Finance Ministry announced a surprise boost to state coffers—₹1.39 lakh crore released as tax devolution to states, twice the usual monthly payout.
What is Tax Devolution?
Tax devolution refers to the share of central taxes given to states, as per the Finance Commission’s recommendations. Under the 15th Finance Commission, 41% of divisible taxes are earmarked for states.
Usually, the payout is made in monthly instalments. However, in this case, the June payout was doubled to ₹1.39 lakh crore, covering:
- Regular monthly devolution
- Advance release for liquidity support
Why Was the Devolution Doubled in June?
The Centre cited fiscal support for the following:
- Welfare schemes like health, education, and food subsidies
- Infrastructure projects under roads, railways, and rural housing
- Pre-monsoon preparedness
- Smoother cash flow for salary, pensions, and state-level subsidies
This strategy aligns with the Centre’s growth-through-capex agenda, encouraging states to front-load spending for better economic impact.
State-Wise Payout Highlights
Here’s a quick snapshot of key state allocations (in ₹ crore):
| State | Amount Received |
|---|---|
| Uttar Pradesh | 12,055.22 |
| Bihar | 11,583.31 |
| Madhya Pradesh | 9,033.52 |
| Maharashtra | 8,510.40 |
| West Bengal | 7,727.44 |
| Rajasthan | 7,543.90 |
| Tamil Nadu | 6,651.34 |
| Gujarat | 6,513.16 |
| Andhra Pradesh | 5,529.56 |
| Karnataka | 5,414.04 |
(Source: Press Information Bureau, Ministry of Finance, 2 June 2025)
How Does This Help State Budgets?
Key benefits of doubling tax devolution to states:
- Ensures predictable revenue flow
- Reduces dependence on borrowings
- Enables faster project clearances
- Helps meet FRBM targets by reducing fiscal stress
- Supports GST compensation gap management
Legal and Policy Basis
- Article 280 of the Constitution empowers the Finance Commission to recommend state shares.
- The 15th Finance Commission (2021–26) recommended a 41% share of divisible pool taxes to states.
- The current distribution follows the vertical and horizontal devolution formula approved by Parliament.
Expert View
Efiletax Insight:
“Doubling the devolution in June ensures states don’t delay welfare disbursements or infra tenders due to liquidity issues. It’s a smart pre-emptive move to maintain momentum during an election-heavy year and monsoon period.”
Summary
Centre releases ₹1.39 lakh crore as tax devolution to all 28 states on June 2, 2025—double the usual amount. This aims to boost state capex, welfare schemes, and local development projects through enhanced liquidity support.
FAQ on Tax Devolution
Q1. What is tax devolution to states?
It’s the transfer of a portion of central taxes to state governments, as per the Finance Commission’s formula.
Q2. Why was it doubled this month?
To support liquidity, capex, and welfare programs before monsoon and festival cycles.
Q3. Does this affect the Centre’s budget?
No. It’s a timing advancement within the annual allocation, not additional spending.
Q4. Will this continue every month?
Not likely. This was a one-time advance; future months will follow the regular cycle.
Final Word
The ₹1.39 lakh crore tax devolution is not just a fund transfer—it’s a signal. The Centre wants states to spend quickly, effectively, and in alignment with national growth goals.