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The Union Government released an advance instalment of tax devolution worth ₹1,09,019 crore to States on 1 August 2026, in addition to the normal monthly devolution due on 10 August 2026.
Uttar Pradesh received the largest share (₹19,208 crore), followed by Bihar (₹10,845 crore) and Madhya Pradesh (₹8,010 crore).
The devolution follows the 16th Finance Commission's recommendation of a 41% vertical share of the divisible pool of central taxes to States for 2026-31.
Vertical devolution is the share of the Centre's divisible pool of taxes given to States as a whole (41% under both the 15th and 16th Finance Commissions). Horizontal devolution is how that States' share is then split among individual States, using a weighted formula. The 16th Finance Commission's horizontal formula (2026-31) weighs: Income Distance 42.5%, Population (2011 Census) 17.5%, Demographic Performance 10%, Area 10%, Forest & Ecology 10%, and — newly introduced — Contribution to GDP 10%. The earlier tax-and-fiscal-effort criterion has been dropped.
Simple Analogy: Vertical devolution decides how big the States' slice of the national tax pie is; horizontal devolution decides how that slice is cut between individual States.
Provides for the constitution of a Finance Commission every five years to recommend the distribution of tax proceeds between the Union and States
Tabled in Parliament on 1 February 2026; recommends 41% vertical devolution and a revised horizontal formula effective 1 April 2026
GS Paper 2 > Centre-State Relations; GS Paper 3 > Indian Economy > Fiscal Policy
With reference to the Fourteenth Finance Commission, which of the following statements is/are correct? 1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent. 2. It has made recommendations concerning sector-specific grants. Select the correct answer using the code given below.
Answer: 1 only
Recurring — devolution instalments are reported by PIB nearly every month
The net proceeds of central taxes (excluding cesses, surcharges and collection costs) that are shared between the Union and States as per the Finance Commission's vertical devolution formula