Explanation : The proceeds of income tax are compulsorily shareable between the Centre and the States. It is imposed and collected by the Central government but the proceeds are shared between the both. The share of the states in the net proceeds of income tax has varied from 55 per cent as under the First Finance Commission to 85 per cent as under the ninth Commission, regarding criterion for fixation of the shares of individual states, the percentage of the net proceeds of income tax assigned to them, the first to seventh finance commissions recognised 'population' and contribution to be the relevant factors.
Recommendation of a uniform formula for the enter se distribution of Income tax (excluding the percentage of tax proceeds earmarked for distribution on the basis of origin) and union excise duties by the eight finance commission marked the beginning of the second phase which lasted till the tenth finance commission. The eleventh finance commission marked the beginning of the third phase with full convergence in the distribution formula when all the union taxes became shareable with states. ....Read more