Despite a reduction in Karnataka‘s share of central taxes from 4.7% to 3.6%, the state is expected to receive more central funds than initially proposed for the 2024-25 fiscal year. The Centre had initially allocated ₹44,485 crore to Karnataka, but this figure is now anticipated to rise to around ₹51,000 crore, with projections suggesting it could reach ₹55,000 crore in the next financial year. This increase is due to a significant growth in the Centre’s revenue, driven by a 16% rise in direct taxes (including personal and corporate income tax) and a 9% increase in indirect taxes, primarily GST.
Recent data from the Central Board of Direct Taxes (CBDT) reveals a 42% increase in tax refunds, totaling ₹3.7 lakh crore, contributing to a 16% rise in net direct tax collections, which reached ₹17 lakh crore by the end of December. The final quarter is expected to further boost this, bringing total direct tax collections to ₹25.5 lakh crore, surpassing initial projections of ₹22 lakh crore.
However, Karnataka’s share of central taxes has been reduced, and the state government argues that it is receiving less than it should, considering its contribution to tax collections. Revenue Minister Krishna Byre Gowda highlighted that Karnataka, being the second-largest contributor to tax collections after Maharashtra, would have received over ₹20,000 crore more had the original share been retained. With the 3.6% allocation, the state will receive only ₹6,000 crore more than initially expected, which he described as an unfair deal.
Experts suggest that while Karnataka’s share in tax devolution is fixed, the Centre may increase grants for centrally sponsored schemes, including the rural employment guarantee and the Jal Jeevan Mission.
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