The Fifteenth Finance Commission is believed to have reduced the tax devolution to states from the existing 42 per cent of the divisible tax pool in its report for 2020-21, according to a report by Business Standard.
Tax devolution refers to the sharing of central taxes and grants with states. These taxes are untied funds, and states can spend them according to their discretion
The move is likely to give the revenue-strapped Centre some breathing space.
The Commission, however, is said to have increased the tied funds, such as grants related to revenue deficit and disaster relief, and bring back performance-based incentives, according to the report.
The 15th Finance Commission submitted its first report to President Ram Nath Kovind in early December and the Finance Ministry is expected to table the report before the presentation of the Budget. The ministry will also table an "Action Taken Report" that will list the Commission's recommendations that the Centre has accepted.
"The Commission, in its first report, has tried to strike a balance. While the devolution has been reduced, grants and tied funds to states have been increased," a senior government official told the publication.
According to the report, some portion of the funds will also be tied to the states' performances on various parameters, including how well they have carried out rural, social sector, and infrastructure policies, the official said.