Share of taxes increases 10%, but state says it way too measly

Bengaluru: Karnataka's share of central taxes has increased by 10% in absolute terms — to Rs 51,876 crore for 2025-26 from Rs 46,932 crore in the current fiscal year — in finance minister Nirmala Sitharaman's Union budget, but the state govt has said it is miniscule compared to what Karnataka contributes to the central govt's tax kitty.
The 10% increase is because the divisible pool, from which the Centre devolves funds to states, is projected to grow to Rs 14.2 lakh crore from Rs 12.5 lakh crore in 2024-25. Tax buoyancy has also resulted in revision of devolution from a projected Rs 44,485 crore to Rs 46, 932 crore, for the current year, a marginal increment.
Besides the tax devolution, Karnataka is also eligible for a Rs 3,647 crore interest-free loan for 50 years as the Centre has sought to continue its ‘special capital invest assistance scheme' for states to create assets.
But the state govt has dismissed the increase, insisting that it is only marginal, while pointing out that none of the items on its wish list was mentioned in the budget. For instance, reminding the Centre of promises made in previous budgets, the state had urged Sitharaman to settle Rs 11,495 crore in dues outstanding, but there is no mention of it in the budget.
National Student Union of India, the student wing of Congress, staged a protest on Sunday and tried to lay siege to Sitharaman's Rajya Sabha MP office in Bengaluru.
"Saturday was a black day for Karnataka," said revenue minister Krishna Byre Gowda, who represented the state in pre-budget meetings with Sitharaman. "The state has got a raw deal despite being the second-highest tax contributor. Leave alone adequate new allocations, it has not even bothered to settle pending dues."
The divisible pool comprises 41% of taxes — both direct and indirect — and duties collected by the Centre. It is divided among states based on recommendations of the Finance Commission. The 15th Finance Commission, which recommended devolution for five years from 2021, reduced Karnataka's share from 4.7% to 3.6%.
While this is one of the reasons for Karnataka securing less in tax devolution, officials point out that the share has not even increased proportionate to the size of the Union budget, which has doubled from 24.5 lakh in 2018-19 to 50 lakh crore in 2025-26. Karnataka's share of taxes has barely risen 50% to Rs 51,876 crore, while grants for centrally sponsored schemes has remained stagnant at Rs 15,000 crore in the period.
Pending dues include Rs 5,495 crore as a special grant recommended by the 15th Finance Commission and Rs 5,300 crore for the Upper Bhadra project, which was promised in the 2023-24 budget. The state had also demanded Rs 3,000 crore for Bengaluru's Peripheral Ring Road (now Bengaluru Business Corridor), and Rs 3,000 crore for the development of lakes.
The memorandum highlighted stark discrepancies in contributions to social security pensions. The state spends Rs 10,554 crore on old-age and widow pensions, but the Centre's contribution is a mere Rs 471 crore — 4% of the total expenditure.
While the budget has not addressed these issues, the Centre has deflected attention to Rs 7,567 crore allocated for railway projects. "It is quite substantial. We can take forward significant projects like Gadag-Wadi and Rayadurg-Tumakuru via Kalyandurg lines out of this fund," said V Somanna, minister of state for railways.