Written by Akram MBengaluru | November 17, 2025 08:26 PM IST 3 min readKarnataka's tax share shrank between the 14th and 15th Finance Commissions, resulting in a loss of nearly Rs 80,000 crore during the five-year period. (File Photo)Earlier this year, Karnataka cheered as it emerged as the state with the highest per capita income in the country in 2024-25. Data presented by the Ministry of Finance in Parliament showed that the per capita Net State Domestic Product was highest at Rs 2.04 lakh for 2024-25, up from Rs 1.92 lakh a fiscal earlier.ARTICLE CONTINUES BELOW VIDEOThe spurt in per capita income was attributed to the state government’s guarantee schemes—such as Gruha Lakshmi, which provided women heads of families with Rs 2,000 per month—that offered financial incentives. However, there are now fears that the increase in per capita income could lead to a reduction in funds devolved by the Centre to the state during the award period of the 16th Finance Commission, 2026-2031.Speaking to indianexpress.com, a senior official from the state finance department said the officials were keeping their fingers crossed, fearing that the state’s share in devolved taxes could dip further. “One of the key parameters for tax devolution under the 16th Finance Commission is income distance, under which states with lower income levels get a higher share in taxes. Since Karnataka’s per capita income has increased over the past few years, there are concerns that the tax share will be reduced further,” the official said.This would come as a major blow to Karnataka, as it witnessed a 23 per cent reduction in taxes devolved under the 15th Finance Commission. Its tax share shrank from 4.713 per cent to 3.647 per cent between the 14th and 15th Finance Commissions, resulting in a loss of nearly Rs 80,000 crore during the five-year period. Apart from it, the Centre’s decision to deny Karnataka special funds recommended by the Finance Commission—totalling around Rs 11,500 crore—to offset the reduction had put the state on the warpath with the Central Government. The Congress Government had even protested in Delhi over the issue.Another official from the department, however, was optimistic that the level of taxes devolved under the 16th Finance Commission would be on par with that under the 15th Finance Commission. “We have made a strong case before the commission by highlighting the contribution of Karnataka to the national GDP. We have also noted that not much of the revenue from the IT services sector flowed to the state despite it being a large employment generator for people from around the country, and urged the commission to reward a state like Karnataka, which has recorded consistent growth over the past few decades,” the official said.The recommendations of the 16th Finance Commission, under its chairman Dr Arvind Panagariya, will be applicable for five years from the 2026-27 fiscal year. The commission’s report will be tabled during the Budget session of Parliament in February 2026.Stay updated with the latest - Click here to follow us on Instagram© The Indian Express Pvt LtdTags:Karnataka