Constitutional Powers shaping Public Finance

Constitutional powers on spending and taxing define the scope of public finance. Legislatures enact laws for national regulation and development, generating public expenditure, and empower the executive to raise revenue through taxation while prescribing restrictions to ensure equity and transparency. Provisions of Indian Constitution in this regard are as follows:

Law making power

Article 245: Extent of Laws Made by Parliament and State Legislatures

• Parliament may make laws for the whole or any part of India.

• State Legislatures may make laws for the whole or any part of the State.

• Laws cannot be invalid merely because of extra-territorial operation, though states are territorially limited.

Article 246: Subject-Matter of Laws Made by Parliament and State Legislatures

• This is the core distribution clause.

• It divides legislative powers between the Union and the States based on the Three Lists in the Seventh Schedule:

  • List I — Union List: Parliament has exclusive power.

  • List II — State List: States have exclusive power (subject to Articles 249, 250, 252).

  • List III — Concurrent List: Both Parliament and States can legislate; in case of conflict, Parliament prevails (Art. 254).

Article 246A: Special Power for Goods and Services Tax (GST)

• Inserted by the 101st Constitutional Amendment (2016).

• Parliament and State Legislatures have concurrent powers to make laws on GST.

• Parliament has exclusive power over inter-State trade or commerce (IGST).

Article 247: Power of Parliament to Provide for Additional Courts

Articles 248: Residuary Powers of Legislation

• Parliament has exclusive power over residuary subjects (any subject not in Lists I–III).

• Entry 97 reinforces this.

Article 249: Parliament’s Power to Legislate on State List in National Interest

Article 250: Parliament’s Power During Emergency

Article 251: Inconsistency Between Union and State Laws Under Articles 249 & 250

Article 252: Power of Parliament to Legislate for Two or More States by Consent

Article 254: Inconsistency Between Union and State Laws on Concurrent Subjects

• If conflict arises between a Central and State law on a Concurrent List subject, Central law prevails, unless State law has Presidential assent.

Article 368: Constitution Amendment Power

• Indirectly relevant because amending the Seventh Schedule also changes legislative powers.

Seventh Schedule — Three Legislative Lists

List I — Union List (97 entries)

Subjects requiring national uniformity: defence, foreign affairs, atomic energy, railways, banking, currency, income tax (except agricultural income), etc.

List II — State List (66 entries)

Local/state subjects: police, public health, agriculture, land, local government, betting and gambling, etc.

List III — Concurrent List (47 entries)

Shared subjects: criminal law, criminal procedure, forests, education, marriage and divorce, bankruptcy and insolvency, etc.

Restrictions on states and union in tax matters

Article 265: No tax without authority of law

Articles 276: Tax on professions, trades, callings — State power, subject to a constitutional ceiling.

Article 277: Continuation of taxes existing before the commencement of the Constitution unless changed by Parliament.

Article 285: Property of the Union is exempt from State taxation.

Article 286: States cannot tax:

• Import and export of goods

• Inter-State sale (now subsumed in GST)

• Services (now under GST)

Article 287: Exemption of electricity consumed by the Union from State taxes.

Article 289: State property is exempt from Union taxation (subject to exceptions).

Distribution of tax revenues between union & states

Article 268: Duties levied by the Union but collected and appropriated by the States

E.g., stamp duties on certain instruments; excise on medicinal and toilet preparations.

Article 269: Taxes levied and collected by the Union but assigned to the States

E.g., taxes on inter-State sale prior to GST.

Article 269A: Levy and collection of IGST by the Union with apportionment between Union & States.

Article 270: Taxes levied and collected by Union but shared between Union and States

E.g., income tax, part of GST pool.

Article 271: Surcharge on taxes and duties — exclusive power of Parliament; proceeds go entirely to the Union.

Finance Commission

Article 280: Constitution of Finance Commission every five years to recommend:

• Distribution of tax revenues

• Grants-in-aid

• Measures needed to strengthen fiscally weak States

Union Budget

Article 112: Annual Financial Statement (AFS)

• The Constitution mandates that the President shall cause the Annual Financial Statement (popularly called the Budget) to be laid before both Houses of Parliament. The AFS contains:

  • Revenue Receipts (tax + non-tax)

  • Capital Receipts (loans, recoveries, disinvestment)

  • Revenue Expenditure

  • Capital Expenditure

  • Detailed estimates relating to:

    • Consolidated Fund of India

    • Contingency Fund of India

    • Public Account of India

• The Budget distinguishes charged expenditure and votable expenditure (differential treatment under Article 113).

Article 113: Parliamentary Procedure on Estimates

• Expenditure charged on the Consolidated Fund of India (CFI) is not votable by the Lok Sabha. Examples:

  • Salary & allowances of:

    • President

    • Speaker & Deputy Speaker

    • Judges of Supreme Court & High Courts

    • Comptroller and Auditor-General

    • UPSC Chairman & Members

  • Debt charges

• Other expenditures (i.e., non-charged) are presented as Demands for Grants.

• Lok Sabha alone has the right to vote on these demands. It may:

  • Pass the demand

  • Reduce the amount (cut motions)

  • Reject the demand

• Rajya Sabha can discuss the Budget, but cannot vote on Demands for Grants.

Article 114: Appropriation Bill

• Once Demands for Grants are voted, an Appropriation Bill is introduced.

• It seeks authorization for government to withdraw money from the CFI.

• No amount can be withdrawn from the CFI without a valid Appropriation Act.

• Appropriation Bill is a Money Bill (processed under Article 109).

Article 115: Supplementary, Additional & Excess Grants

• Supplementary Grant: For needs not foreseen in the Budget.

• Additional Grant: For new services not contemplated in the Budget.

• Excess Grant: When expenditure exceeds the amount voted; must be regularized.

• Excess expenditure is first examined by the Public Accounts Committee (PAC) before Parliament votes to regularise it.

Article 116: Vote on Account, Vote of Credit & Exceptional Grants

• Vote on Account: Enables government to withdraw money for a short period (e.g., first two months of the financial year) when Budget is not passed by 31 March.

• Vote of Credit: Granted for unexpected/exigency situations (e.g., war, natural calamity) when the requirements cannot be precisely stated.

• Exceptional Grant: For services not included in the current year's Budget.

Article 110: Definition of Money Bill

A Bill dealing with:

• Taxation (imposition, abolition, remission, alteration)

• Consolidated Fund & Contingency Fund

• Borrowing of money

• Appropriation of money

is a Money Bill.

Article 117: Special Provisions for Money Bills & Financial Bills

• No Money Bill or Financial Bill can be introduced without the President’s recommendation.

• Money Bills can be introduced only in Lok Sabha.

• Rajya Sabha:

  • Cannot amend a Money Bill.

  • Can only make recommendations.

  • Must return within 14 days; otherwise deemed passed.

• The Finance Bill, which contains taxation proposals of the Budget, is a Money Bill.

Article 266: Consolidated Fund, Contingency Fund & Public Account

• Consolidated Fund of India (CFI):

  • All revenues received by the Government of India

  • All loans raised

  • All repayments of loans

  • All expenditure is incurred from this Fund.

• Public Account of India:

  • o   Transactions where government acts as a banker (PF, small savings, deposits).

• Contingency Fund of India:

  • o   At disposal of the President for urgent, unforeseen expenditures.

  • o   Requires subsequent parliamentary approval.

Article 267: Establishment of Contingency Fund

• Parliament may by law establish the Contingency Fund.

• President draws advances; post-facto appropriation is required.

Comptroller and Auditor-General

Article 148: Comptroller and Auditor-General of India

1. Establishment & Appointment

• Provides for the creation of the office of the Comptroller and Auditor-General of India (CAG).

• CAG is appointed by the President of India.

2. Independence & Security of Tenure

• CAG shall not be removed except in like manner and on like grounds as a Judge of the Supreme Court (i.e., impeachment by Parliament for proved misbehaviour or incapacity).

• Conditions of service, including salary and allowances:

  • Cannot be varied to his disadvantage after appointment.

  • Salary charged on the Consolidated Fund of India (thus non-votable).

3. Oath of Office

• CAG takes an oath before the President to faithfully perform duties.

Article 149: Duties & Powers of the CAG

• Parliament shall define, by law, the duties and powers of the CAG. Based on this article, Parliament enacted the Comptroller and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971.

• Under this framework, CAG:

  • Audits receipts & expenditures of:

    • Union & State governments

    • Consolidated Fund of India & States

    • Public Account of India & States

    • Government companies & corporations (under certain laws)

    • Bodies substantially financed from government revenue

• Conducts performance audits, efficiency audits, appropriation audits, etc.

Article 150: Form of Accounts of the Union and States

• The President shall prescribe the form and basis in which the accounts of the Union and States shall be kept.

• This must be done on the advice of the CAG. CAG has the authority/expertise to determine how government accounts will be structured, ensuring transparency and standardisation.

Article 151: Audit Reports

1. Submission of Reports

• Union: CAG submits audit reports to the President, who causes them to be laid before both Houses of Parliament.

• States: CAG submits audit reports to the Governor, who lays them before the State Legislature.

2. Types of Reports

• Audit of Appropriation Accounts

• Finance Accounts

• Performance Audit Reports

• Compliance & Efficiency Audits

3. Parliamentary Scrutiny: After being laid before Parliament, the reports are examined by:

• Public Accounts Committee (PAC)

• Committee on Public Undertakings (COPU)

Public Finance and the Realisation of Human Purpose

Thus, through the measures of public finance—by allocating resources for collective welfare, regulating economic activity, and ensuring fair and transparent taxation—the Constitution fosters peace, order, and justice in society. A stable and just public framework enables individuals to pursue their aspirations, fulfil their life’s purpose, and ultimately move toward self-actualisation.