Part XII: Finance, Property, Contracts, and Suits

Article 274: Prior recommendation of President required to Bills affecting taxation

Original Article:

(1) No Bill or amendment which imposes or varies any tax or duty in which States are interested, or which varies the meaning of the expression “agricultural income” as defined for the purposes of the enactments relating to Indian income-tax, or which affects the principles on which under any of the foregoing provisions of this Chapter moneys are or may be distributable to States, or which imposes any such surcharge for the purposes of the Union as is mentioned in the foregoing provisions of this Chapter, shall be introduced or moved in either House of Parliament except on the recommendation of the President.

(2) In this article, the expression “tax or duty in which States are interested” means—

• (a) a tax or duty the whole or part of the net proceeds whereof are assigned to any State; or
• (b) a tax or duty by reference to the net proceeds whereof sums are for the time being payable out of the Consolidated Fund of India to any State.

Explanations:

Article 274 ensures that fiscal legislation impacting state taxation cannot be introduced or moved without the prior recommendation of the President. This mechanism safeguards state fiscal interests, maintaining a balance between federal oversight and state autonomy.

Clause-by-Clause Explanation:

Clause (1): Requirement for Presidential Recommendation

This clause prohibits Parliament from introducing or moving bills that alter tax structures or revenue principles affecting states without Presidential approval.

Real-Life Example: If Parliament intends to redefine "agricultural income" for income tax purposes, such legislation must secure the President's recommendation before discussion.

Clause (2): Definition of “Tax or Duty in which States are Interested”

This clause categorizes taxes affecting state revenues as either wholly or partially assigned to the States, or those drawn from the Consolidated Fund of India.

Real-Life Example: Revenue generated from GST, shared between the Union and the States, is protected under this definition.

Legislative History:

Article 274, introduced as Article 254-A in the Draft Constitution, was debated on August 8, 1949. It emphasized the need for central oversight in financial legislation affecting states. Dr. B.R. Ambedkar clarified that the President’s recommendation served as a safeguard against financial imbalances.

Debates and Deliberations:

During the Constituent Assembly debates on Article 254-A, Dr. B.R. Ambedkar emphasized that the President’s recommendation would prevent financial imbalances that might arise if states' taxation interests were altered unilaterally. He explained that such oversight was necessary to maintain a balanced federal structure.

Prof. Shibban Lal Saksena criticized the article, expressing concerns that it limited Parliament’s legislative independence. He argued that elected representatives should have the freedom to propose tax-related changes, particularly to benefit their states. Saksena suggested that such a requirement undermined the legislative process.

Mr. Naziruddin Ahmad opposed the provision, stating that redefining "agricultural income"—traditionally under state jurisdiction—might encroach on state autonomy. He feared this could centralize tax authority, reducing the financial independence of states.

Ultimately, the Assembly acknowledged these concerns but prioritized fiscal stability and federal harmony over regional autonomy. The article was adopted, emphasizing the role of the President as a neutral arbiter in financial legislation impacting states.

References:

• Constituent Assembly Debates, Volume IX, August 8, 1949: Discussions on Draft Article 254-A.
• Granville Austin, "The Indian Constitution: Cornerstone of a Nation" - Analysis of federal financial provisions.
• D.D. Basu, "Commentary on the Constitution of India," Article 274.
• Government of India, Ministry of Law and Justice, "Constitution of India: Text and Commentary."