Union Budget 2026: Karnataka's tax share rises to 4.13%, gets Rs 63,049 crore

Karnataka's share in taxes and duties from the union government's tax pool for the next five years have raised from 3.67 per cent to 4.13 per cent with the state all set to get Rs 63,049.58 crore in 2026-27 even as the Finance Commission's recommendation to retain states' share in central taxes at 41 per cent for the five-year period beginning April 1.

In what could bring some cheers to southern states though their entire demands have not been met, their share in central tax has increased while those of Uttar Pradesh, Bihar, Rajasthan, Madhya Pradesh, Odisha and West Bengal among others have declined.

However, the southern states may still be critical of the tax devolution plan, as they have concerns over the criteria adopted by the Finance Commission. Karnataka Chief Minister Siddaramaiah has already described it as a “disturbing outcome”.

In her Budget speech on Sunday, Finance Minister Nirmala Sitharaman said the government has accepted the recommendation of the 16th Finance Commission headed by Arvind Panagariya to retain the vertical share of devolution at 41% and have provided Rs 1.4 lakh crore to the states for 2026-27 as Finance Commission Grants, including rural and urban local body and disaster management grants.

While Karnataka's share in the past five years was 3.64 per cent under 15th Finance Commission, the latest recommendation would mean it would get Rs 12,247.93 crore more from 2025-26. However, Karnataka has not crossed 4.71 per cent earmarked under 14th Finance Commission. Karnataka government has been demanding that it should get a share higher than 4.71 per cent, citing a loss of around Rs 80,000 crore.

Incidentally, states like Uttar Pradesh, Bihar, Madhya Pradesh, West Bengal, Chhattisgarh, Rajasthan and ten other states, including several in north-east, saw their share decreasing compared to the previous Finance Commission recommendation.

Out of every Rs 100 distributed among states, Karnataka will get Rs 4.13 while Uttar Pradesh will get Rs 17.61, Bihar Rs 9.94, Madhya Pradesh Rs 7.34, West Bengal Rs 7.21, Maharashtra Rs 6.44 and Rajasthan Rs 5.92.

Uttar Pradesh -- whose share declined from 17.93 per cent to 17.61 per cent -- will get Rs 2.68 lakh crore in the next fiscal while it is Rs 1.51 lakh crore for Bihar and 1.12 lakh crore for Madhya Pradesh, Rs 1.10 lakh crore for West Bengal and Rs 90,445.85 crore for Rajasthan.

Among the south Indian states, Tamil Nadu's share has risen from 4.07 per cent to 4.09 per cent, Kerala 1.92 per cent to 2.38 per cent, Andhra Pradesh 4.04 per cent to 4.21 per cent and Telangana 2.10 per cent to 2.17 per cent. Andhra Pradesh will be getting Rs 64,362.16 crore in 2026-27, Tamil Nadu 62,530.65 crore, Kerala Rs 36,355.39 crore and Telangana Rs 33,180.78 crore.

The Finance Commission report was appreciative of Karnataka for exhibiting strong fiscal autonomy, rooted in diversified economic bases with industry and services making substantial contributions to their GSDPs.

“At 80 per cent per cent in 2023‑24, Telangana and Haryana report the highest proportions of own revenues in total receipts and exhibit the lowest reliance on devolution and grants (including the Union’s contribution to the CSS). Karnataka (75.7 per cent) and Maharashtra (75.1 per cent) also exhibit strong fiscal autonomy, rooted in diversified economic bases with industry and services making substantial contributions to their GSDPs,” it said.