The federal base of taxing power: distribution of taxing powers under the Constitution

1. Article 265: no tax without law

Article 265 says that no tax shall be levied or collected except by authority of law. “Law” means an Act of a competent legislature, not an executive order. A levy is therefore valid only if (a) the legislature has competence under an entry, (b) the law does not offend any other provision of the Constitution (Part III, Articles 276, 285 to 289, 301 to 304), and (c) the tax is levied and collected in accordance with the law. A tax collected without authority must be refunded, subject to the rules on unjust enrichment.

2. Separate tax entries

Article 246 distributes legislative power through the three Lists of the Seventh Schedule. The Supreme Court has repeatedly held that in the scheme of the Lists, taxation is a distinct matter: the power to tax a subject is found only in a specific tax entry, and a general entry on the same subject does not include the power to tax it (State of West Bengal v. Kesoram Industries Ltd., 2004 INSC 34, (2004) 10 SCC 201). The tax entries in List I begin at Entry 82; in List II at Entry 45.

Union List (List I), the main tax entries.

• Entry 82: taxes on income other than agricultural income.
• Entry 83: duties of customs including export duties.
• Entry 84 (as substituted in 2016): duties of excise on tobacco and tobacco products, and on petroleum crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel, and medicinal and toilet preparations containing alcohol.
• Entry 85: corporation tax.
• Entries 86 to 88: taxes on the capital value of assets (other than agricultural land), estate duty and succession duty (other than agricultural land).
• Entry 89: terminal taxes on goods or passengers carried by railway, sea or air.
• Entry 90: taxes other than stamp duties on transactions in stock exchanges and futures markets.
• Entry 91: rates of stamp duty on bills of exchange, cheques, shares and similar instruments.
• Entry 92A: taxes on the sale or purchase of goods other than newspapers in the course of inter-State trade (the Central Sales Tax, now confined to goods outside GST).
• Entry 97: any other matter not in List II or III, including any tax not mentioned in either of those Lists (the residuary power, read with Article 248).

State List (List II), the main tax entries.

• Entry 45: land revenue. Entry 46: taxes on agricultural income. Entries 47 and 48: estate and succession duty on agricultural land.
• Entry 49: taxes on lands and buildings. Entry 50: taxes on mineral rights, subject to limits imposed by Parliament relating to mineral development.
• Entry 51: excise on alcoholic liquor for human consumption, opium and narcotics.
• Entry 53: taxes on the consumption or sale of electricity.
• Entry 54 (as substituted in 2016): taxes on the sale of petroleum crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not sale in inter-State trade or export.
• Entries 56 to 60: taxes on goods and passengers carried by road or inland waterways, on vehicles, on animals and boats, tolls, and taxes on professions, trades, callings and employments.
• Entry 62 (as amended in 2016): taxes on entertainments and amusements to the extent levied by a Panchayat, Municipality or district council.
• Entry 63: rates of stamp duty on instruments other than those in List I.

The Concurrent List has no tax entry; Entry 47 of List III allows only fees, and Entry 44 covers stamp duties other than judicial stamps but not the rates. Because there is no concurrent tax power, the doctrine of repugnancy under Article 254 does not ordinarily arise in tax matters; the question is always which List contains the tax.

3. The residuary power

Under Article 248 and Entry 97 of List I, Parliament alone may impose a tax not mentioned in List II or List III. In Union of India v. H.S. Dhillon, 1971 INSC 289, (1971) 2 SCC 779, the inclusion of agricultural land in net wealth for wealth-tax was challenged. The majority held that the only question is whether the tax is within List II; if it is not, Parliament has power under Entry 86 or, failing that, under the residuary entry. Since no State entry covered a tax on the capital value of assets that include agricultural land, the levy was valid. Gift tax and expenditure tax rested on the same reasoning.

4. Article 246A: the simultaneous power for GST

The Constitution (One Hundred and First Amendment) Act, 2016 inserted Article 246A. Parliament and the State legislatures both have power to make laws with respect to goods and services tax imposed by the Union or by the State (clause (1)). Parliament alone has power over GST where the supply takes place in the course of inter-State trade or commerce (clause (2)), which is the base of the IGST Act, 2017. For petroleum crude, high speed diesel, petrol, natural gas and aviation turbine fuel, GST applies only from a date recommended by the GST Council (Article 279A(5)). The same Amendment omitted Entry 92 (newspapers) and Entry 92C (service tax) from List I, and Entries 52 (entry of goods into a local area) and 55 (advertisements) from List II.

Article 246A is a simultaneous power, not a concurrent one in the Article 254 sense: the Centre and each State levy their own tax on the same intra-State supply. In Union of India v. Mohit Minerals Pvt. Ltd., 2022 INSC 596, (2022) 10 SCC 700, the Court held that Article 246A treats the Union and the States as equal units and that the recommendations of the GST Council under Article 279A are not binding on legislatures; they carry persuasive value.

5. Distribution of tax revenue: Articles 268 to 281

• Article 268: stamp duties in List I are levied by the Union but collected and kept by the States.
• Article 269: taxes on inter-State sale and consignment of goods are levied and collected by the Union but assigned to the States.
• Article 269A: GST on inter-State supplies (and on imports) is levied and collected by the Union and apportioned between the Union and the States as Parliament provides on the recommendation of the GST Council.
• Article 270: all taxes in List I, except those under Articles 268, 269 and 269A and except cesses and surcharges, are levied and collected by the Union and distributed between the Union and the States (the divisible pool). Clauses (1A) and (1B) bring CGST and the Union share of IGST into this pool.
• Article 271: surcharges on taxes in Articles 269 and 270 go wholly to the Union.
• Article 275: grants-in-aid to States in need of assistance, and Article 282 discretionary grants.
• Article 276: State tax on professions, trades, callings and employments, capped at ₹2,500 a year per person (clause (2)). This is why the professional tax is a deduction from salary under section 19 (Table: Sl. No. 1) of the Income-tax Act, 2025 [section 16(iii)].
• Article 274: Bills affecting taxes in which States are interested need the President’s prior recommendation.
• Article 280: the Finance Commission, constituted every five years, recommends the share of the States in the divisible pool (vertical devolution) and its distribution among them (horizontal devolution), and the principles of grants-in-aid. The Fifteenth Finance Commission recommended 41% for the States for 2021–26; the Sixteenth covers the period from 2026–27.

6. Delegation of taxing power

The power to tax belongs to the legislature and cannot be wholly abdicated. The legislature may, however, leave the rate or details to the executive or to a local body if it lays down the policy and guidance. Local bodies have no inherent power to tax; they tax only under State law. Article 243H lets the State legislature authorise a Panchayat to levy, collect and appropriate taxes, duties, tolls and fees, and Article 243X does the same for Municipalities. Article 243-I and 243Y provide State Finance Commissions. (Limits on these powers and the delegation cases are taken up in the next note.)

How this is examined

January 2026 (80-mark paper) Q. 1(a): discuss the provisions relating to taxing powers under the Indian Constitution, and Q. 2(b): a note on Centre–State tax relationships. February 2025 Q. 1(a): the power of taxation and constitutional limitations.

For the essay, open with Article 265, list a selection of entries from each List (accuracy matters more than length), explain the separation of tax entries (Kesoram), the residuary power (Dhillon) and Article 246A (Mohit Minerals), and end with Articles 268 to 270 and the Finance Commission. For the note on Centre–State relations, concentrate on section 5 and add the GST Council.