Under the system of fiscal federalism in the Constitution, which of t…

Under the system of fiscal federalism in the Constitution, which of the following pairs of a tax and its arrangement is correctly matched?

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Sales tax - Levied and collected by the states on their own

Option (1) Sales tax - Levied and collected by the states on their own — Correct. Sales tax was one of the taxes the states could levy and collect themselves, with land and property taxes and the tax on bottled liquor. This was part of the system of fiscal federalism.

Option (2) Estate duties - Proceeds retained by the Centre — Incorrect. Estate duties went the other way. The Centre assigned these wholly to the states.

Option (3) Income tax - Proceeds handed over to the states — Incorrect. Income tax was a shared tax. The Centre shared its proceeds with the states, along with excise duties.

Option (4) Customs duties - Proceeds shared by the Centre with the states — Incorrect. Customs duties were among the taxes where the Centre retained all the proceeds. They were not shared with the states.

NCERT (2026-27): “4. The Powers of the State …
The Constitution also mandated for a complex system of fiscal federalism. In the case of some taxes (for instance, customs duties and Company taxes) the Centre retained all the proceeds; in other cases (such as income tax and excise duties) it shared them with the states; in still other cases (for instance, estate duties) it assigned them wholly to the states. The states, meanwhile, could levy and collect certain taxes on their own: these included land and property taxes, sales tax, and the hugely profitable tax on bottled liquor.”