The case for Tamil Nadu ‘due share’ from central taxes
Tamil Nadu, a major contributor to central taxes, has long complained of a ‘discriminatory approach’.
Of India’s divisible tax revenues, states are collectively entitled to 41 percent. Tamil Nadu’s share, however, is 4.097 percent – about Rs 62,530 crore – while states such as Uttar Pradesh and Bihar receive more than 17 and 9 percent, respectively, under the Centre’s devolution formula.
The contrast is particularly striking as the southern state ranks fourth in its contribution to India’s direct taxes. According to its I-T department, the state contributed Rs 1,08,364 crore to the country’s direct taxes in FY23. This gap between what Tamil Nadu contributes and what it receives lies at the heart of its demand for a bigger slice of the pie.
Set to pass a resolution seeking a “fair share” of Union taxes, Tamil Nadu has formed a legal committee to pursue the issue in the Supreme Court.
The division of the Centre’s tax kitty is decided by the Finance Commission, a constitutional body reconstituted every five years. Its formula typically weighs: population, income disparity that means higher allocation for poorer states, area, forest cover, and demographic performance, meaning reward for population control. The last one has become a flashpoint for southern states, which argue they are being penalised for their success.
Tamil Nadu’s move for better devolution also comes against the state’s worsened fiscal situation: direct outstanding debt at Rs 10 lakh crore, revenue deficit at a record Rs 78,324 crore and fiscal deficit at Rs 1.33 lakh crore, as per the newly-elected TVK government’s White Paper.
The report released by TN Finance Minister Maria Wilson also pointed to declining own-tax revenue, high committed expenditure, and hidden liabilities. However, the minister insisted that the situation is “challenging but not hopeless”. It also clarified that the state will not be imposing any fresh taxes.
Governor Rajendra Vishwanath Arlekar, meanwhile, has said that the state will “properly document” every rupee due from the Centre and publish a report on the latter’s “discriminatory approach” toward financial devolution for Tamil Nadu.
Before Arlekar, several other politicians also complained of discrimination in devolution. Earlier, previous state Finance Minister Thangam Thennarasu said on X: “Five Southern states that drive India’s economy get just 15% allocation, while Bihar, UP, and MP together corner nearly 40 percent. Is this cooperative federalism or centralised discrimination?”
In another tweet, he said, “Tamil Nadu already receives less than what it deserves,” and asked, “Is this how performing states are rewarded?”
Thangam also pointed out that for the implementation of some central schemes, the state had “ended up bearing a higher share of the cost”. Citing examples, he posted on X that “in PMAY (Rural), the Centre is supposed to contribute 60 percent, but actually provides only 39 percent”, the remaining 61 percent was reportedly being covered by the state.
In the National Social Assistance Programme pension schemes too, Thangam said, “Tamil Nadu gives ₹1,200–₹1,500 to beneficiaries, while the Centre gives just ₹300–₹500… This is not true cooperative federalism, it’s cost shifting in the name of central schemes.”
Reports suggest that the state has also witnessed a sharp decline in central grants in recent years. While grants stood at about Rs 37,730 crore in 2022-23, they fell to Rs 16,509 crore two years later. Even by 2026-27, the state expects grants to recover only to around Rs 24,760 crore.
In his recent statements, Governor Arlekar said, “This government will work diligently to continuously press the Union government to safeguard the welfare of Tamil Nadu, to fight for State rights, to implement required schemes for the State, and to create new infrastructure.”
Other southern states have also raised concerns over declining tax devolution. They argue that their population control has led to better socioeconomic indicators but a smaller share of central funds, leaving them feeling “punished” for their success. These concerns are compounded by fears of losing parliamentary seats after the 2026 delimitation exercise.
Andhra Pradesh has, in fact, begun incentivising the birth of a third and fourth child, reversing its three-decade-old population control policy – a departure from the central government’s push to address India’s population challenges.