Borrowing by and Tax immunities of centre and states

Q.  Which of the following is/are true?

1) A state government can borrow from outside India.
2) State and local authorities can tax the corporations or the companies created by the Union government.
- Published on 24 Feb 17

a. Only 1
b. Only 2
c. Both 1 and 2
d. Neither 1 nor 2

ANSWER: Only 2
 
    Provisions for borrowingby Centre and the States -
  • The Central government can borrow either within India or outside.

  • The security provided would be the Consolidated Fund of India.

  • It can even give guarantees on basis of the Fund.

  • Both these rights need to be within the limits fixed by the Parliament.

  • A state government can borrow within India only.

  • The security provided would be the Consolidated Fund of the State.

  • Even state government can give guarantees.

  • Both these rights need to be within the limits fixed by the concerned state legislature.

  • State government cannot raise loans from outside India.

  • The Central government can give loans to any state.

  • It can also give guarantees for loans raised by any state.

  • Any amount needed for the purpose of making these loans are charged on the Consolidated Fund of India.

  • A state cannot raise any loan without the permission of the Centre, if there is still any part of a loan made to the state by the Centre outstanding.

  • They raise any loan without the permission of the Centre if for previous any loan a guarantee has been given by the Centre.
    Tax Immunities for Centre and state properties -
  • The property of Centre is exempted from all taxes imposed by a state.

  • They are exempted from tax of any authority within a state like municipalities, Panchayats, etc.

  • But, the Parliament can remove this ban.

  • The property may be used for sovereign(like armed forces) or commercial purposes.

  • State and local authorities can tax the corporations or the companies created by the Union government because they are a separate legal entity.

  • The property and income of a state is exempted from Central taxation but corporations and companies of a state are not.

  • If Parliament provides the Centre can tax the commercial operations of a state.

  • The property and income of local authorities located within a state are not exempted from the Central taxation.

  • Immunity to a state in respect of taxation by union does not extend to the duties of customs or excise.

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