Consider the following statements about the system of fiscal federali…

Consider the following statements about the system of fiscal federalism laid down in the Constitution:

(A) The Centre retained all the proceeds of customs duties and Company taxes.
(B) The Centre shared the proceeds of income tax and excise duties with the states.
(C) The proceeds of estate duties were assigned wholly to the Centre.
(D) The states could levy and collect sales tax and the tax on bottled liquor on their own.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → A, B and D only

(A) The Centre retained all the proceeds of customs duties and Company taxes. — Correct. Customs duties and Company taxes were kept fully by the Centre. This was one of three ways taxes were divided.

(B) The Centre shared the proceeds of income tax and excise duties with the states. — Correct. Income tax and excise duties were shared. The Centre collected them and gave the states a part.

(C) The proceeds of estate duties were assigned wholly to the Centre. — Incorrect. Estate duties went the other way. They were assigned wholly to the states.

(D) The states could levy and collect sales tax and the tax on bottled liquor on their own. — Correct. The states had taxes of their own, such as land and property taxes, sales tax and the very profitable tax on bottled liquor.

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.”