Telangana Budget 2025: Concerned over declining State share, Telangana suggests horizontal tax devolution

Telangana Deputy Chief Minister Mallu Bhatti Vikramarka along with family perform pooja ahead of the presentation of state Budget in the Assembly in Hyderabad on March 19, 2025.
| Photo Credit: Nagara Gopal

Lower tax devolution and relatively lesser fund allocation to well-peforming States by the Centre figured in the Budget speech presented by Deputy Chief Minister Mallu Bhatti Vikramarka in Telangana Legislative Assembly on March 19, 2025.

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The Telangana government has expressed concern over the declining share of tax devolution for Southern states, including Telangana. Under the 14th Finance Commission, Telangana received 2.437% of funds, which declined to 2.102% under the 15th Finance Commission.

Our government represented that allocating fewer funds to well-performing states is unfair and advocated a more rational tax distribution system that incentivizes states contributing significantly to the nation’s economic growth, said Mr. Vikramarka.

Flagging the lower allocation of funds from Centre in the tax devolution, Telangana Budget has proposed horizontal tax devolution instead of the current “Per Capita Income Distance” criterion.

Telangana government has proposed reforms in the horizontal tax devolution, suggesting a shift away from the current “Per Capita Income Distance” criterion. It favours assigning 50% weightage to GSDP (Gross State Domestic Product) to ensure a more equitable allocation of resources for states driving national economic growth.

The proposal aims to promote balanced development by fairly distributing financial resources to high-performing states. Telangana remains committed to securing its rightful share, while ensuring the effective utilization of economic resources to strengthen its financial stability and growth., he said.

Mr. Vikramarka also said the state government has proposed increasing the central tax devolution from the current 41% to 50%. to the 16th Finance Commission.