Budget 2026: Centre Retains 41% Tax Devolution, Boosts Local Bodies Funding

• Expenditure Secretary V Vualnam confirms Centre will maintain 41% tax devolution to states from the divisible tax pool, signaling stronger fiscal federalism.
• The 41% share remains unchanged from the 15th Finance Commission, a significant increase from 32% a decade ago.
• States have full autonomy to utilize these substantial resources as they deem fit.
• The 16th Finance Commission recommends a massive ₹7.9 lakh crore for urban and rural local bodies (municipalities and Panchayats), nearly doubling the previous outlay.
• This enhanced support for local bodies, under the 73rd and 74th Constitutional Amendments, aims for 'whole-of-country development' and improved grassroots governance.

Why It Matters: Budget 2026 reinforces fiscal federalism with sustained 41% tax devolution and doubled funding for local bodies.