ARTICLE 274

Article 274 of the Indian Constitution places a significant check on legislative actions concerning taxation matters that directly impact the interests of the States. This article stipulates that no Bill or amendment related to taxes or duties, including those linked to the concept of agricultural income for Indian income tax, or affecting the principles of distribution to the States, shall be introduced or moved in Parliament without the prior recommendation of the President.

What does Article 274 states ?

 Prior recommendation of President required to Bills affecting taxation in which States are interested

(1) No Bill or amendment which imposes or varies any tax which varies any tax or duty in which States are interested, or which varies the meaning of the expression agricultural income as defined for the purposes of the enactments relating to Indian income tax, or which affects the principles on which under any of the foregoing distributable to State, or which imposes any surcharge for the purposes of the Union as is mentioned in the foregoing provisions of this Chapter, shall be introduced or moved in either House or Parliament except on the recommendation of the President ( 2 ) In this article, the expression tax or duty in which States are interested means

(a) a tax or duty the whole or part of the net proceeds whereof are assigned to any State; or

(b) a tax or duty by reference to the net proceeds whereof sums are for the time being payable out of the Consolidated Fund of India to any State

Background of Article 274

• Article 274 of the Indian Constitution was derived from the original Draft Article 254A.
• The initial version of the Draft Constitution of India, formulated in 1948, did not incorporate the Draft Article. Nevertheless, the proposal to incorporate it was put forth by the Chairman of the Drafting Committee.
• The aforementioned article under discussion was subject to deliberation inside the Indian Constituent Assembly on the 8th of August, 1949.
• As per the article, the presentation of any Bill or amendment related to taxes or charges that pertain to the States of India requires a prior recommendation from the President of India before it may be introduced in the Parliament.
• During the deliberations pertaining to this item in the Constituent Assembly, several concerns were expressed. One of the members of the Assembly expressed opposition to the Draft Article. The individual held the viewpoint that the Draft Article made an effort to infringe upon the jurisdiction of the States. A fellow participant expressed dissent towards the Draft Article, contending that it contravened the fundamental entitlement of parliamentary members.
• Notwithstanding the presence of dissenting views, subsequent deliberation on the Draft Article did not occur. The Constitution of India incorporated it on August 8, 1949.

Clauses of Article 274

Clause(1) :-

• The initial provision of Article 274 underscores the requirement for a recommendation in order to introduce any Bill or modification pertaining to taxes or the allocation of funds between the Central government and the State government in the Parliament.
• According to the stipulation, the introduction or proposal of such laws in the Indian Parliament, encompassing both the Lok Sabha and the Rajya Sabha, is contingent upon prior endorsement by the President of India.
• Moreover, it is important to note that these Bills or changes are restricted from imposing or altering taxes or duties that are of concern to the States, as well as modifying the definition of “agricultural income” in relation to Indian income taxes.
• Furthermore, it is imperative to note that there exists a limitation on the ability to modify the fundamental rules governing the allocation of financial resources to the several States. Furthermore, it is impermissible for them to levy additional fees for the purpose of benefiting the Union government.
• The provision outlined in clause (1) of Article 284 of the Indian Constitution stipulates that bills or amendments pertaining to taxation, the imposition or alteration of taxes, the distribution of funds, and surcharges that affect the States must receive the endorsement of the President of India prior to their introduction in Parliament.

Clause(2) :-

• The definition of the word “tax or duty in which States are interested” as utilized in the article is provided in the second clause of Article 274. This statement elucidates that the aforementioned phrase pertains to a fiscal imposition or levy, wherein a portion or the all of the funds gathered is remitted to a governmental body at the state level.
• In addition to the aforementioned connotation, it also pertains to a fiscal imposition or obligation wherein funds are presently disbursed from the Consolidated Fund of India to a regional administration.
• The phrase used in section (2) can be understood as denoting taxes or duties that generate revenue or earnings allocated or receivable to any State government within the Indian Union from the Consolidated Fund of India. These taxes or duties are regarded as being of interest to the States.

Key aspects of Article 274

1.  Presidential Recommendation: One of the central provisions of Article 274 is the requirement for the President’s prior recommendation before introducing or amending any Bill related to taxes or duties that affect the interests of the States. This recommendation serves as a constitutional safeguard to ensure that States’ fiscal matters are not tampered with arbitrarily by the Union government.
2.  Scope of Taxation: The article covers a wide range of taxation matters, including:
•   Taxes or duties with net proceeds assigned to any State.
•   Taxes or duties for which sums are payable from the Consolidated Fund of India to any State.
•   Taxes or duties that alter the meaning of agricultural income for the purposes of Indian income tax.
•   Taxes or duties that impact the principles of distribution to the States.
3.  Protection of State Interests: Article 274 reflects the principles of fiscal federalism in India. It acknowledges the financial autonomy of States and ensures that any changes in tax policies that could affect their revenues are made with due consideration and approval from the highest constitutional authority, the President.
4.  Checks and Balances: This article serves as a critical check and balance mechanism within the Indian federal structure. It prevents unilateral decisions by the Union government that could adversely affect the fiscal health of States, fostering cooperative federalism in financial matters.
5.  Consolidated Fund of India: The reference to the Consolidated Fund of India highlights the importance of transparent and accountable financial management. Any taxes or duties for which sums are payable from this fund to a State must be subject to the President’s recommendation.