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Income distance, Tax Effect, and Rural Local Bodies

Income distance, Tax Effect, and Rural Local Bodies

The 15th Finance Commission’s meeting held on 25th June 2020 with the ministry of Panchayati Raj, discussed the constitution of a state property tax board, release of performance grants to states, and matters related to the collection of taxes, slabs, etc.

The meeting was instrumental in forming up commission’s recommendations for the years 2020-21 to 2025-26.

FUND ALLOCATION

Finance Commission is considering keeping the grant of PRIs (Panchayati Raj Institutions) at Rs 10 lakh crore, for the revised period of 2021-2026.

PROPERTY TAX BOARD FOR STATES

  • The property board will be tasked with the transfer of funds to Rural Local Bodies (RLBs).
  • States are required to submit the report of ‘own resources’ generated by RLBs since Financial Year (FY) 2011-12, and the impact of GST on RLB’s revenue.

STATES TO PAY LESSER TAXES

States in the divisible pool of central taxes will see a reduced tax share by one percentage point from 42% to 41%, factoring in the formation of two new Union territories, Jammu and Kashmir and Ladakh from the former State of Jammu and Kashmir.

TAX SHARE OF KARNATAKA WILL GO DOWN

The tax share of most southern states, including Andhra Pradesh, Kerala, and Karnataka, has come down.

This reduced tax share may reflect in forms of lesser property taxes and registration charges levied from individuals buying a property in the State. Taxes on daily commodities and good is also expected to go down, making the cost of living a little less expensive.

ALTERED PERFORMANCE STATS

A new criterion, the “tax effect,” will be introduced for states, with a 2.5% weightage, leading to a significant reduction in the weightage for income distance from 50% to 45%.

  • Tax Effect is the difference between the tax on net wealth assessed and the tax that would have been chargeable.
  • Income Distance is the difference between the Gross State Domestic Product (GSDP) of a particular state from the state with the highest GSDP.

 

SOURCES :

  • (2020, June 25). FinComm discusses constitution of property tax board in states, fund devolution to RLBs. Retrieved June 29, 2020, from Link
  • Mishra, A. (2020, February 01). 15th Finance Commission cuts states’ share of central taxes to 41% vs 42%. Retrieved June 29, 2020, from Link
  • CITED FROM:Link
  • Pti, P. (2020, June 26). Finance Commission discusses constitution of property tax board in states, fund devolution to RLBs. Retrieved June 29, 2020, from Link

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