Relevance: GS-2 (Federal Finance) | Source: The Hindu, Lok Sabha Debate

The Lok Sabha passed the Central Excise (Amendment) Bill, 2025, which levies excise duty on tobacco products. The revenue will enter the divisible pool, with 41 percent shared with states. This replaces the older compensation cess that was not shareable.

What is Excise Duty?

Excise duty is a Union tax on the manufacture of goods.
 Under Article 270, most Union taxes (including excise on non-petroleum items) form part of the divisible pool and are shared with states based on the Finance Commission formula.

Divisible vs Non-Divisible Taxes — Key Difference

Category

 Examples Shared with States?

Constitutional Basis
Divisible taxes Income tax, excise duty (non-petroleum), Central GST share Yes – States receive 41% Article 270
Non-divisible levies Cess, surcharge, compensation cess No – retained fully by Centre Article 271

Important: Cesses and surcharges reduce the effective revenue available in the divisible pool.

Q. With reference to India’s public finance, which of the following is/are part of the divisible pool of taxes?

  1. Income tax
  2. Excise duty on tobacco
  3. Surcharges levied by the Union
  4. Compensation cess on goods

Select the correct answer:
 (a) 1 and 2 only
 (b) 1 and 4 only
 (c) 2 and 3 only
 (d) 1, 2, 3 and 4

Correct Answer: (a)

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