Karnataka Chief Minister Siddaramaiah
Credit: PTI File Photo
The Union government will devolve Rs 63,049.58 crore to Karnataka as its share in taxes and duties for the 2026-27 financial year as the 16th Finance Commission has recommended a tax share of 4.13 per cent for the State.
Karnataka, India’s second-highest tax-paying State, has been demanding a revision of the horizontal devolution formula for the 16th Finance Commission, seeking to increase its share from 3.64% (15th Finance Commission) back toward 4.71% or higher, citing a loss of roughly ₹80,000 crore. The State has been arguing that 15th Finance Commission criteria heavily penalises high-performing States, and advocates for a formula that recognises tax contributions and reduces reliance on income distance.
In a statement on Friday, Chief Minister Siddaramaiah said the 15th Finance Commission’s report reduced the State tax share by 23 per cent as against the 14th Finance Commission report. For example, out of every ₹100 that is distributed to States, Karnataka used to receive ₹4.71 earlier, but the 15th Commission brought it down to ₹3.64. As a result, the State suffered a massive loss of approximately ₹80,000 crore in tax share, he said.
For the 2025-26 financial year, the Centre devolved Rs 51,876 crore to Karnataka as its share in taxes and duties.
"Karnataka, which stands as the driving force in the country’s economic strength and ranks first in per capita economic productivity, contributes between ₹4.5 lakh crore and ₹5 lakh crore to the Central government every year in the form of taxes, cess, etc. It is unfortunate that Karnataka is the State that receives the lowest tax share and grants from the Centre in the entire country, relative to its overall budget."
Demanding that its earlier 4.71% share be restored for Karnataka to "breathe a sigh of relief", the Chief Minister said "true justice will be delivered if we are given more than that".
Andhra Pradesh is set to receive Rs 64,362.16 crore under devolution, the highest among the southern States, followed by Tamil Nadu – Rs 62,530.65 crore, Kerala – Rs 36,355.39 crore and Telangana – Rs 33,180.78 crore.
The 16th Finance Commission, headed by former Vice-Chairman of the NITI Aayog Arvind Panagariya, has recommended retaining States' share in Central taxes at 41 per cent for the five-year period beginning April 1, 2026.
Finance Minister Nirmala Sitharaman, in her budget speech on Sunday, said, "The government has accepted the recommendation of the commission to retain the vertical share of devolution at 41 per cent".
The Centre has provided Rs 1.4 lakh crore to the States for the financial year 2026-27 as Finance Commission Grants, as recommended by the commission. These include rural and urban local body and disaster management grants.
The report of the 16th Finance Commission was tabled in Parliament by Sitharaman on Sunday.
The Finance Commission, which has been set up under the Constitution, provides a formula for the devolution of taxes between the Centre and States.
Cesses and surcharges levied by the Centre are not part of the divisible pool.