Finance is the life blood of any government. Arrangements for finance are more complicated in a federal system, which creates a multiple polity based on divided functions and powers among central, state, and local governments. Fiscal federalism, as a branch of public finance, deals with financial arrangements and their working in a federal polity. In India, fiscal federalism is a subject of topical interest, in view of some recent developments of historical importance. With the passage of two amendments in 1992, panchayats (village councils) and municipalities are now constitutional bodies forming the third tier of the federal polity of India. Furthermore, the Constitution (Eightieth Amendment) Act, 2000 significantly changed the manner of distribution of central tax collections between the central and state governments. Prior to this amendment, income tax and union excise duties were the only taxes shared with the states. This amendment altered the pattern by providing for the sharing
