16th Finance Commission Report: A Setback for Telangana, Tax Devolution Increased by Just 0.072%

Hyderabad: The 16th Finance Commission’s recommendations to retain the previous formula for sharing Central taxes with states have come as a major setback for Telangana, with the state receiving only a negligible increase — 0.072 —in its share of the divisible tax pool despite repeated representations seeking a more equitable formula.

The report of the 16th Finance Commission was tabled in Parliament on Sunday along with the Union Budget and will come into effect from April 1, 2026, remaining in force for five years till 2031-32.

A key demand was to increase the states’ share in vertical devolution from the existing 41 per cent to 50 per cent, but the commission did not entertain it.

According to the recommendations, Telangana’s share in Central tax devolution has been fixed at 2.174 per cent, against 2.102 per cent under the 15th Finance Commission for the period 2021-26. The state government views this marginal rise as disappointing, particularly against the backdrop of a consistent decline in its share over time.

Under the 14th Finance Commission, Telangana had received 2.437 per cent of the divisible tax pool. This declined sharply under the 15th Finance Commission, and the latest recommendations have failed to restore the earlier level. Finance officials have termed the trend a matter of serious concern, arguing that the present formula disadvantages economically productive and fiscally disciplined States such as Telangana.

Why states need more

The state government had submitted a memorandum to the 16th Finance Commission, strongly advocating a fairer distribution of central taxes.

State sought enhanced financial support to maintain debt sustainability, accelerate infrastructure development and sustain social welfare programmes.

Government said that the increasing cesses and surcharges, which the Centre does not need to share, had substantially reduced the money available to states.

This practice disproportionately affected states that contribute significantly to the national economy.

Allocating fewer funds to well-performing states, especially in the south, was inherently unfair and counterproductive.

Deputy Chief Minister Mallu Bhatti Vikramarka had called for a revision of the horizontal devolution formula, seeking greater weightage to GSDP as a performance indicator.

Bhatti proposed that GSDP contribution should account for at least 50 per cent weightage in the formula. The current formula emphasises per capita income distance.

Centre's tax devolution to all states for 2026-27: ₹15,26,254.58 crore

Telangana's share: ₹33,180.78-cr (2.174%)

Of which:

Corporation tax: ₹9,740.28-cr

Income-tax: ₹11.808.15-cr

Central GST: ₹9,074.92-cr

Customs: ₹1,770.30-cr

Union excise duty: `₹754.15-cr

Other taxes, duties: ₹32.98-cr