PART 12: Constitution Of India

PART XII: FINANCE, PROPERTY, CONTRACTS AND SUITS

CHAPTER I: FINANCE

Article 264: Interpretation.

• Plain English: This is a “dictionary” clause. It simply states that within this Part of the Constitution, the term “Finance Commission” refers to the one set up under Article 280.
• Real-World Example: When Article 270 talks about “recommendations of the Finance Commission,” this article clarifies that it means the official one appointed by the President.

Article 265: Taxes not to be imposed save by authority of law.

• Plain English: This is one of the most fundamental principles of democracy and a cornerstone of financial law. It simply means: No tax can be levied or collected except by the “authority of law.”
• This means the government (at any level) cannot just issue an executive order or a notification to start collecting a new tax. It must first pass a proper Bill through the legislature (Parliament or a State Assembly), have it voted on, and get it signed into law (as an “Act”).
• Real-World Example: If the central government wants to introduce a new “Digital Services Tax,” the Finance Minister must introduce it as a “Finance Bill” in Parliament. It must be passed by the Lok Sabha and Rajya Sabha before the Income Tax Department can legally start collecting it. This is the principle of “no taxation without representation.”

Article 266: Consolidated Funds and public accounts of India and of the States.

• Clause (1):
  • Plain English: This creates the main government bank account, the “Consolidated Fund.”
    • Consolidated Fund of India: All money received by the Union government (all taxes like income tax, all loans it takes) goes into this one fund.
    • Consolidated Fund of the State: All money received by a State government (all state taxes like VAT/SGST, all loans it takes) goes into its own separate fund.
• Clause (2):
  • Plain English: This creates a second, different type of account called the “Public Account.” This account is for all other public money that the government receives but does not own. It is money that the government is just holding in trust for other people.
  • Real-World Example: When you pay into your Provident Fund (PF) or when a court holds a security deposit, that money goes into the “Public Account.” The government is just its “banker” and must pay it back.
• Clause (3):
  • Plain English: This is the “lock” on the main bank account. No money can be taken out of the Consolidated Fund (at the Centre or in a state) except “in accordance with law” and only for the “purposes and in the manner provided in this Constitution.”
  • Real-World Example: This is the clause that makes the Appropriation Bill (the Budget, under Article 114 or 204) a constitutional necessity. The Appropriation Bill is the “law” that provides the legal authority to withdraw money from the Fund to pay for salaries, roads, and defence.

Article 267: Contingency Fund.

• Clause (1):
  • Plain English: This allows Parliament to create a separate “Contingency Fund of India” (an emergency pot of money). This fund is placed at the disposal of the President to make “advances” (temporary payments) for unforeseen spending, before Parliament has had a chance to vote on it.
  • Real-World Example: A massive earthquake hits a state in May, when Parliament is not in session. The President (on the advice of the Prime Minister) can immediately sanction money from the Contingency Fund for disaster relief, without waiting for Parliament to meet and pass a supplementary budget. Parliament must then approve this spending after the fact to refill the fund.
• Clause (2):
  • Plain English: This allows each State Legislature to do the exact same thing, creating a “Contingency Fund of the State” placed at the disposal of the Governor.
  • Real-World Example: A state Governor uses the state’s Contingency Fund to order emergency supplies after a cyclone, pending later approval from the State Assembly.

Article 268: Duties levied by the Union but collected and appropriated by the States.

• Plain English: This is the first of several articles on “tax sharing.” It lists certain taxes that are levied (the rate is set) by the Union government (in the Union List), but are collected and kept by the State governments.
• Real-World Example: The PDF refers to stamp duties and excise on medicinal preparations. Historically, stamp duties on things like “bills of exchange, cheques, promissory notes” were set by Parliament, but the money was collected and kept by the state where the stamp was sold. (Note: Most of this system has been replaced by GST).

Article 268A: Service tax levied by Union and collected and appropriated by the Union and the States.

• (Note: This article was inserted by the 88th Amendment Act, 2003, as mentioned in your PDF, to provide a constitutional basis for “Service Tax.” It has since been made redundant by the 101st Amendment (GST). But this is what it meant.)
• Clause (1):
  • Plain English: This stated that the tax on “services” (Service Tax) would be levied by the Union government.
• Clause (2):
  • Plain English: It said this tax would be collected and appropriated (shared) by both the Union and the States, based on rules made by Parliament.
• Real-World Example: This was the legal foundation for the Service Tax you used to pay on restaurant bills, phone bills, and professional fees before 2017. The central government set the tax rate, and the money was collected and then shared between the Centre and the states.

Article 269: Taxes levied and collected by the Union but assigned to the States.

• Clause (1):
  • Plain English: This deals with taxes on the inter-state sale or consignment of goods. The Union government (Parliament) is the only one with the power to levy and collect these taxes.
  • Key Detail: Even though the Union collects it, the money (the “net proceeds”) does not go into the Union’s bank account. It is “assigned” (given) to the states.
• Explanation:
  • (a) This is the Central Sales Tax (CST), a tax on the sale of goods (not newspapers) that happens “in the course of inter-State trade.”
  • (b) This is a tax on sending goods from one state to another (“consignment”).
• Real-World Example: A car factory in Tamil Nadu sells a car to a dealer in West Bengal. This is an inter-state sale. The CST applies. The tax is collected (by the “origin” state, Tamil Nadu, on behalf of the Union) and the revenue is kept by Tamil Nadu. This entire system is now replaced by the Integrated GST (IGST), which is also levied by the Union on inter-state trade.
• Clause (2):
  • Plain English: Parliament will make a law to decide how this collected money is distributed among the states.
• Clause (3):
  • Plain English: Parliament has the sole power to make a law that defines what legally counts as an “inter-state” sale or consignment.

Article 270: Taxes levied and distributed between the Union and the States.

• Clause (1):
  • Plain English: This is the “Divisible Pool” or the “Shared Pot” of taxes. It says that all taxes and duties on the Union List (e.g., Income Tax, Corporation Tax) except for a few specific ones (like those in Art. 268/269, Surcharges in Art. 271, and Cesses) are levied and collected by the Union government…
• Clause (2):
  • Plain English: …but a certain percentage of the total money collected must be distributed among all the states.
• Clause (3):
  • Plain English: The exact percentage of the pool and the formula for dividing it among the states (e.li., how much UP gets vs. Tamil Nadu) will be “prescribed” by the President, after considering the recommendations of the Finance Commission.
• Real-World Example: This is the most important article for state finances. The 15th Finance Commission (an independent body) recommended that 41% of the “divisible pool” of all central taxes should be given to the states. The President accepts this. So, for every ₹100 collected by the central government from income tax, corporation tax, etc., ₹41 is transferred to the states based on the Commission’s formula (which considers population, area, forest cover, etc.).

Article 271: Surcharge on certain duties and taxes for purposes of the Union.

• Plain English: This article gives the Union government (Parliament) a special, exclusive power. It can, at any time, add a “surcharge” (which is like a “tax on a tax”) on top of any of the taxes that are shared with the states (like those in Article 269 and 270, e.g., income tax).
• Crucial Detail: The money collected from this surcharge is not shared with the states. The entire amount goes only to the Union government (it forms part of the Consolidated Fund of India).
• Real-World Example: The government needs more money for a specific national purpose (e.g., healthcare or education). In the Union Budget, the Finance Minister announces a “Health and Education Cess” of 4% on all income tax. If your income tax is ₹100,000, you pay an extra ₹4,000. This ₹4,000 (the surcharge/cess) is not part of the “divisible pool” (Art. 270) and is kept 100% by the central government. States often criticize this as a “loophole” to avoid sharing revenue.

Article 272: [Taxes which are levied and collected by the Union and may be distributed between the Union and the States.]

• Plain English: This article, which dealt with certain taxes (like excise duties) that the Union could share with the states if Parliament passed a law, is no longer in effect.
• It was repealed by the Constitution (80th Amendment) Act, 2000. This amendment simplified the system by creating the single “divisible pool” in Article 270, where all central taxes are shared. This article is now only of historical importance.

Article 273: Grants in lieu of export duty on jute and jute products.

• Plain English: This was a special, temporary financial arrangement for the eastern states that were major jute producers.
• Clause (1): It stated that the central government must give “grants-in-aid” (fixed sums of money) to the states of Assam, Bihar, Orissa, and West Bengal every year. This grant was given in place of (in lieu of) any share they might have gotten from the export duty on jute.
• Clause (2): This was a “sunset clause.” It said this special payment would only continue for a maximum of ten years from the start of the Constitution (i.e., until 1960) or as long as the Union continued to levy an export duty on jute, whichever was earlier.
• Clause (3): The amount to be paid (“prescribed”) would be set by the President based on the Finance Commission’s recommendation.
• Real-World Example: This is a historical article. It was a compromise in 1950 because, before the Constitution, these provinces kept a share of the jute export duty. This article guaranteed them a fixed payment for 10 years to help them adjust to the new financial system. This article is no longer operative.

Article 274: Prior recommendation of President required to Bills affecting taxation in which States are interested.

• Clause (1):
  • Plain English: This is a major procedural safeguard for states. It says that Parliamentcannot introduce or move any Bill (or amendment) that would:
    • Impose or change a tax in which the states have a share.
    • Change the definition of “agricultural income” (which is a state subject for tax).
    • Affect the principles by which money is distributed to states.
    • Impose a “surcharge” (under Art. 271).
  • …unless the President of India has first given their “recommendation” for that Bill to be introduced.
• Real-World Example: The Union Finance Minister wants to introduce the annual “Finance Bill,” which sets the income tax rates for the year. Since income tax is a tax “in which States are interested” (they get 41% of it via Art. 270), the Minister must first go to the President to get a formal “recommendation” before introducing the Bill in the Lok Sabha.
• Clause (2):
  • Plain English: This is a “dictionary” clause. It defines what “tax or duty in which States are interested” means:
    • (a) A tax where the net proceeds (the collected amount) are partially or fully given to the states. (e.g., Income Tax).
    • (b) A tax where the net proceeds are used as a reference to pay out sums to states from the Consolidated Fund. (e.g., the old jute duty).

Article 275: Grants from the Union to certain States.

• Plain English: This article creates “Grants-in-Aid.” These are grants given by Parliament (from the Consolidated Fund of India) to states that are in need of financial assistance to help them cover their running costs. This is separate from the tax-sharing (Art. 270). The amount can be different for different states.
• Real-World Example: A small, hilly state with very little industry (like Nagaland or Himachal Pradesh) cannot raise enough tax revenue on its own to pay for its police, schools, and hospitals. The Finance Commission (under Art. 280) will “recommend” that this state receive a “Revenue Deficit Grant” of, for example, ₹5,000 crore every year for five years under this article, just to keep the government functioning.
• First Proviso:
  • Plain English: This is a mandatory grant. It says the Union government must pay for the costs of any special “development schemes” that a state undertakes (with the Union’s approval) for two specific purposes:
    • Promoting the welfare of Scheduled Tribes in that state.
    • Raising the level of administration in the “Scheduled Areas” (as defined in the Fifth Schedule) to be on par with the rest of the state.
• Second Proviso:
  • Plain English: This is another mandatory and specific grant, only for the state of Assam. It says the Union must pay Assam for:
    • (a) The “average excess of expenditure” for administering its “Tribal Areas” (as defined in the Sixth Schedule).
    • (b) The costs of any development schemes (with Union approval) to raise the level of administration in those tribal areas.
• Clause (2):
  • Plain English: Until Parliament passes a law to make these payments, the President can do it by issuing an order.
  • Proviso: After the Finance Commission is created, the President must first consider its recommendations before issuing any such order.

Article 276: Taxes on professions, trades, callings and employments.

• Clause (1):
  • Plain English: This article gives State Legislatures the power to make a law to levy a tax on “professions, trades, callings, and employments.” This is commonly known as “Professional Tax.”
  • It clarifies that just because “income” is a subject for the Union, it doesn’t stop the state from levying this specific tax.
• Clause (2):
  • Plain English: This sets a maximum limit (a “cap”) on how much professional tax a state can charge any one person per year. The PDF you provided states this cap as ₹2,500 (two thousand and five hundred rupees).
• Clause (3):
  • Plain English: This just clarifies that the state’s power to levy this limited professional tax does not in any way reduce Parliament’s unlimited power to levy a general “Income Tax.”
• Real-World Example: The Government of Maharashtra passes a “Professions, Trades, Callings and Employments Tax Act.” Under this Act, it legally collects ₹200 per month (totaling ₹2,400 per year) from every salaried employee in the state. This is legal under Article 276. The employee also has to pay their separate “Income Tax” to the central government under Parliament’s laws.

Article 277: Savings.

• Plain English: This is a “continuity” or “grandfather” clause. It says that if any taxes, duties, or fees were being legally collected by a State, Municipality, or other local body immediately before the Constitution started (Jan 26, 1950)…
• …they can continue to collect that same tax until Parliament passes a law that stops or changes it.
• Crucial Detail: This was to prevent a sudden collapse of local government finances. It allowed old taxes to continue even if the Constitution had now placed that subject on the Union List (making it a central government subject).
• Real-World Example: Before 1950, a small municipality had a local rule to collect a “lamp tax” to pay for street lighting. This article allowed them to continue collecting that tax in 1950, 1951, etc., until Parliament eventually passed a new law that standardized such local taxes.

Article 278: [Agreement with States in Part B…]

• Plain English: This was a temporary article that allowed the Union government to enter into special financial agreements with the former “Princely States” (known as Part B states).
• It was repealed and removed from the Constitution by the 7th Amendment Act in 1956, as the “Part B” state category was abolished. It is no longer in effect.

Article 279: Calculation of “net proceeds”, etc.

• Clause (1):
  • Plain English: This is a “dictionary” clause. When the Constitution talks about sharing the “net proceeds” of a tax, it means the total tax collected minus the cost of collecting that tax.
  • The Final Authority: The Comptroller and Auditor-General of India (C&AG) is the person who checks the government’s math and “certifies” the final “net proceeds” amount. The C&AG’s certificate is final and cannot be challenged.
• Real-World Example: The Income Tax Department collects ₹1000 crore. It spends ₹50 crore on salaries and administrative costs to do this. The C&AG will “certify” that the “net proceeds” are only ₹950 crore. The “divisible pool” (from Art. 270) that gets shared with the states is 41% of this ₹950 crore, not the full ₹1000 crore.
• Clause (2):
  • Plain English: This gives Parliament (or the President) the power to make rules for all the small details of tax sharing, like how the proceeds are calculated, when the payments will be made to the states, and how to make adjustments between different financial years.

Article 280: Finance Commission.

This is one of the most important articles for defining India’s federal structure.

• Clause (1):
  • Plain English: This creates the Finance Commission. The President must appoint this Commission every five years (or earlier, if needed). It will consist of a Chairman and four other members.
• Clause (2):
  • Plain English: Parliament has the power to pass a law to decide the “qualifications” needed to be a member of the Commission and how they will be selected.
  • Real-World Example: Parliament passed the “Finance Commission Act,” which states that the Chairman should be a person with experience in public affairs, and the members should be people with knowledge of finance, economics, or law (often including a High Court judge).
• Clause (3):
  • Plain English: This is the “Terms of Reference” — the job of the Commission. It must make recommendations to the President on the following:
  • (a) The “vertical and horizontal devolution”:
    1. Vertical: How the “divisible pool” of taxes (from Art. 270) should be distributed between the Union and the States (e.g., the 15th FC said “41% for the States”).
    2. Horizontal: The formula for allocating that state share among the states themselves (e.g., how much of that 41% goes to UP vs. Tamil Nadu vs. Goa, based on population, area, forest cover, etc.).
  • (b) The principles that should be used to give out the “Grants-in-Aid” (under Art. 275) to states that are in financial need.
  • (bb) [Added later]: The measures needed to increase a state’s “Consolidated Fund” to help support its Panchayats (local rural bodies), based on the State Finance Commission’s report.
  • (c) [Added later]: The measures needed to increase a state’s “Consolidated Fund” to help support its Municipalities (local urban bodies), based on the State Finance Commission’s report.
  • (d) Any other matter that the President refers to the Commission in the “interests of sound finance.”
  • Real-World Example (for d): The President might ask the 16th Finance Commission to also give its opinion on how to finance disaster management or how to reform state-run power companies.
• Clause (4):
  • Plain English: The Commission has the power to determine its own working procedure and will have all the powers of a civil court (like summoning witnesses) as given to it by Parliament.

Article 281: Recommendations of the Finance Commission.

• Plain English: This article explains the final step of the Finance Commission’s (FC) process (which was set up in Art. 280). The President must take the complete report from the FC and lay it before both Houses of Parliament (the Lok Sabha and the Rajya Sabha).
• Crucial Detail: The President must also attach a separate note called an “explanatory memorandum.” This note is the government’s official response, stating:
  1. Which of the FC’s recommendations the government accepts.
  2. Which recommendations (if any) the government does not accept, and the reasons why.
• Real-World Example: The 15th Finance Commission recommends that 41% of all central taxes should be given to the states. The President sends this report to Parliament. Along with it, the Finance Minister (on behalf of the President) tables a memorandum stating, “The Government of India has accepted the 41% recommendation.” If the FC had also recommended a special grant for “State A” and the government rejected it, the memorandum would have to explain, “The recommendation for ‘State A’ is not being accepted at this time due to…”

Article 282: Expenditure defrayable by the Union or a State out of its revenues.

• Plain English: This gives the Union and State governments a broad, general power to spend money (“make grants”) for any “public purpose.”
• Crucial Detail: This power exists even if the subject of the spending is not on their assigned legislative list (Union or State List). This is a very powerful and widely used article.
• Real-World Example: “Public health” is technically a State List subject. However, the Union government can (and does) use this article to spend billions on nationwide schemes like Ayushman Bharat (the national health insurance scheme) or the national vaccination drive, because it considers these to be for the “public purpose” of the entire nation.

Article 283: Custody, etc., of Consolidated Funds, Contingency Funds and moneys credited to the public accounts.

• Clause (1):
  • Plain English: This clause deals with the Union government’s money. It says that Parliament shall pass a law to regulate:
    1. The custody of the Consolidated Fund of India and the Contingency Fund of India.
    2. The rules for paying money into and withdrawing money from these funds.
    3. The rules for managing the “Public Account of India.”
  • The Proviso: Until Parliament passes such a law, the President shall make the rules.
  • Real-World Example: Parliament has passed laws (like the “General Financial Rules”) that specify the exact procedures for how a ministry can spend money, how government cheques are signed, and how accounts are to be managed.
• Clause (2):
  • Plain English: This is the exact same rule, but for the States. The State Legislature has the power to pass a law to regulate its own Consolidated Fund, Contingency Fund, and Public Account. Until it does, the Governor makes the rules.
  • Real-World Example: The Maharashtra State Legislature passes its own “Treasury Rules” to govern how its funds are managed by the state’s finance department.

Article 284: Custody of suitors’ deposits and other moneys received by public servants and courts.

• Plain English: This article deals with money that the government does not own but is just holding for someone else. This includes money deposited in a court case (“suitors’ deposits”) or any other money held by a government officer in their official capacity.
• Crucial Detail: This money must not be put into the Consolidated Fund (the main bank account). It must be paid into the “Public Account” of India or the State.
• Real-World Example: You are in a rental dispute, and the court orders you to deposit ₹50,000 as a security bond (“suitor’s deposit”). That money is not government revenue. The court places it in the “Public Account.” When you win the case, the court can order the money to be paid back to you from that account without needing a new vote from Parliament or the Assembly (which would be required if it were in the Consolidated Fund).

Article 285: Exemption of property of the Union from State taxation.

• Clause (1):
  • Plain English: This is the general rule: Property belonging to the Union (central) government is exempt from all taxes imposed by a State or any local authority (like a Municipality or Panchayat).
  • Real-World Example: The city of Mumbai (a municipality in the State of Maharashtra) cannot send a “Property Tax” bill to the local Income Tax Office building, the Western Railway headquarters, or the Airport. These are “property of the Union” and are exempt from state/local taxes.
• Clause (2):
  • Plain English: This is the “grandfather” exception. If any Union government property was being legally taxed immediately before the Constitution began (before Jan 26, 1950), that tax can continue to be levied on that property.
  • The Limit: This can only continue until Parliament passes a law that says, “Stop taxing this property.”
  • Real-World Example: A local cantonment board was legally taxing a specific military building in 1949. After 1950, it can continue to send that tax bill unless Parliament passes a specific law to stop it.

Article 286: Restrictions as to imposition of tax on the sale or purchase of goods.

(Note: These rules were foundational for the pre-GST (Sales Tax/VAT) era. They are still part of the Constitution and are the basis for how GST (especially IGST) is structured.)

• Clause (1):
  • Plain English: A State cannot impose a sales tax on a sale that:
    • (a) takes place outside that state.
    • (b) takes place “in the course of” (i.e., as part of) the import or export of the goods.
  • Real-World Example (a): A factory in Punjab sells a machine to a buyer in Haryana. This is an “inter-state” sale. The State of Punjab cannot charge its own sales tax (or SGST) on this. (Today, the Union’s IGST applies, which is based on this principle).
  • Real-World Example (b): A tea exporter in Assam sells a container of tea to a buyer in the UK. The State of Assam cannot charge tax on this sale because it is “in the course of export.” This is done to make Indian exports competitive.
• Clause (2):
  • Plain English: Parliament (and only Parliament) has the power to make a law that defines the clear, technical rules for what legally counts as a sale “outside the state” or “in the course of import/export.”
  • Real-World Example: Parliament passed the “Central Sales Tax Act, 1956,” which lays down the exact legal definitions for when a sale is considered “inter-state.”
• Clause (3):
  • Plain English: Parliament can pass a law to set restrictions and conditions (like a “cap” on the tax rate) that all states must follow when they tax:
    • (a) “declared goods” (goods that Parliament declares are of special national importance).
    • (b) “deemed sales” (like hire-purchase, works contracts, or food served in a restaurant, as defined in Article 366(29A)).
  • Real-World Example (Historical): Before GST, Parliament declared “crude oil” and “steel” to be “goods of special importance.” It then passed a law capping the maximum sales tax any state could charge on them at 4% to ensure uniform pricing.

Article 287: Exemption from taxes on electricity.

• Plain English: A state cannot charge a tax on electricity that is:
  • (a) Consumed by the Government of India (e.g., in a central government office building) or sold to the central government for its consumption.
  • (b) Consumed in the construction, maintenance, or operation of any railway (a Union subject) or sold to the railways for their use.
• Proviso: If a state does have a tax on electricity for the general public, the price it charges to the central government or the railways must be less by the exact amount of the tax.
• Real-World Example: The general public in a state pays ₹7 per unit of electricity, which includes a ₹1 state electricity tax. The state must sell electricity to the local Army base and the local Railway Station at a price of ₹6 per unit (i.e., the price minus the tax).

Article 288: Exemption from taxation by States in respect of water or electricity in certain cases.

• Clause (1):
  • Plain English: This is another “grandfather” clause. If an existing (pre-1950) authority (like the Damodar Valley Corporation, DVC) was set up by law to regulate an inter-state river, the local state cannot tax the water or electricity it sells, unless the President gives permission.
• Clause (2):
  • Plain English: A state can pass a new law to tax such water or electricity, but that law will be void and have no effect unless it is reserved for and receives the President’s assent (signature).
• Real-World Example: The State of West Bengal passes a new law to tax electricity generated by the DVC (an inter-state body). The Governor must reserve this bill for the President. If the President (acting on the Union government’s advice) does not sign it, the law is dead.

Article 289: Exemption of property and income of a State from Union taxation.

• Clause (1):
  • Plain English: This is the “reverse” of Article 285. The property and income of a State are exempt from all taxes imposed by the Union government.
  • Real-World Example: The Government of India cannot charge “Income Tax” on the revenue that the Government of Tamil Nadu earns (e.g., from its own state taxes or from state-run lotteries). It also cannot charge property tax on “Tamil Nadu House,” the state’s guesthouse in Delhi.
• Clause (2):
  • Plain English: This is the “business” exception. This exemption does not apply to any trade or business that a state government runs. Parliament can pass a law to tax the income from such a business.
  • Real-World Example: The Government of Karnataka runs a “State Transport Corporation” (a bus service) and a “State Soaps & Detergents” factory. These are “businesses.” Parliament can pass a law that makes these state-owned companies liable to pay the same “Corporation Tax” as a private company like Tata Motors.
• Clause (3):
  • Plain English: This is the “exception to the exception.” Parliament can, by law, declare that certain state-run businesses are “incidental to the ordinary functions of Government” (like running a state treasury or a government printing press), and in that case, they will be exempt from the Union tax mentioned in Clause (2).

Article 290: Adjustment in respect of certain expenses and pensions.

• Plain English: This is a high-level accounting article for cost-sharing. It says that if a court, commission, or a person’s pension is charged to one government’s fund (e.g., the Union’s) but the work or service was actually for another government (e.g., a state’s), then the second government must pay a “contribution” to the first to cover the cost.
• How is the amount decided?: By agreement. If they can’t agree, it will be decided by an arbitrator who is appointed by the Chief Justice of India.
• Real-World Example: A High Court judge’s pension is “charged” to the Consolidated Fund of India (the Union). But that judge served their entire 20-year career in the Patna High Court, working for the State of Bihar. Under this article, the Union can demand that the State of Bihar pay a “contribution” (e.g., a percentage) to the Union’s fund to cover the cost of that judge’s pension.

Article 291: [Privy purse sums of Rulers.]

• Plain English: This article, which was part of the original 1950 Constitution, dealt with the “Privy Purse.” This was a tax-free, fixed payment promised by the Government of India to the former rulers of the princely states (like Maharajas, Nawabs, and Nizams) in exchange for them agreeing to merge their states into the Union of India in 1947.
• Status: This article was REPEALED and REMOVED from the Constitution by the 26th Amendment Act in 1971. The government stopped these payments, ending the special privileges of the former royalty. This article is now only of historical importance.

CHAPTER II: BORROWING

Article 292: Borrowing by the Government of India.

• Plain English: This gives the Union (central) government the executive power to borrow money. The money is borrowed on the “security of the Consolidated Fund of India,” which is the government’s main bank account and acts as the collateral.
• The Limit: The government’s power to borrow is not unlimited. Parliament has the power to pass a law, from time to time, to set a maximum limit (a “debt ceiling”) on how much money the government can borrow and how much it can guarantee.
• Real-World Example: The Union Government needs to borrow $10 billion from the World Bank for a new infrastructure project. This article gives it the power to do so. To manage the national debt, Parliament passes the “FRBM Act” (Fiscal Responsibility and Budget Management Act), which legally limits how much new debt the government can take on each year as a percentage of GDP.

Article 293: Borrowing by States.

• Clause (1):
  • Plain English: A State government also has the power to borrow money. However, this power is more restricted than the Union’s. A state can only borrow within the territory of India. The borrowing is done on the security of the “Consolidated Fund of the State.”
  • The Limit: Like the Union, a state’s borrowing power can be limited by a law passed by its own State Legislature.
• Clause (2):
  • Plain English: The Union government can give loans to any state, subject to conditions set by Parliament. The money for these loans is paid out of the Union’s main bank account (the Consolidated Fund of India).
  • Real-World Example: A state is in a severe financial crisis. It requests a special financial package from the central government. The Union provides a ₹10,000 crore loan to the state under this article to help it pay its salaries.
• Clause (3):
  • Plain English: This is a major restriction on states. A state cannot raise any new loan (from the market, a bank, etc.) without the Union government’s consent IF that state still owes any money on a previous loan given by the Union government.
• Clause (4):
  • Plain English: When the Union gives its “consent” for a new loan (under Clause 3), it can attach conditions to it.
  • Real-World Example (for 3 & 4): The Government of Punjab wants to raise a new ₹5,000 crore “development loan” from the open market. However, it still has an outstanding loan it took from the central government 10 years ago. Therefore, under Clause (3), it must first get the permission of the Union Finance Ministry. The Union Ministry, using Clause (4), says, “We consent to your new loan, on the condition that you use it only for capital expenditure (like building roads) and not for paying salaries.”

CHAPTER III: PROPERTY, CONTRACTS, RIGHTS, LIABILITIES, OBLIGATIONS AND SUITS

Article 294: Succession to property, assets, rights, liabilities and obligations in certain cases.

• Plain English: This is a transitional article that managed the handover of power from the British government to the new Republic of India on January 26, 1950.
• (a) All property and assets that were owned by the British “Government of the Dominion of India” were transferred to the new “Union of India.” All property owned by the British “Governor’s Provinces” (like the Province of Bombay or Madras) was transferred to the new corresponding “States” (like the State of Bombay or Madras).
• (b) In the same way, all “rights, liabilities, and obligations” (like old contracts, debts, and legal duties) of the old British governments were also transferred to the new Union and State governments.
• Proviso: This just clarifies that this transfer is “subject to any adjustment” made because of the creation of Pakistan in 1947 (e.g., assets and debts had to be divided between the two new countries).

Article 295: Succession to property, assets, rights, liabilities and obligations in other cases.

• Plain English: This is another transitional article that did the same job as Article 294, but this time for the “Indian States” (the 500+ semi-independent Princely States ruled by Maharajas, Nizams, etc.).
• Clause (1):
  • Plain English: All property and assets owned by a Princely State (like the Kingdom of Mysore) were transferred to the Union of India if the purpose of the asset was for a subject on the “Union List” (e.g., defence, railways, or telecommunications). All of that state’s “liabilities” (like debts) for those subjects also became the Union’s problem.
  • Real-World Example: The army, telecommunication lines, and railways run by the “Nizam’s Government” in the Princely State of Hyderabad were transferred to the Union of India and became part of the Indian Army, Indian Post & Telegraph, and Indian Railways.
• Clause (2):
  • Plain English: All other property, assets, and liabilities of the Princely State (for subjects not on the Union List, like state palaces, hospitals, or local treasuries) were transferred to the newly created “Part B” State (e.g., the State of Hyderabad).

Article 296: Property accruing by escheat or lapse or as bona vacantia.

• Plain English: This article explains what happens to “ownerless property.”
  • “Escheat”: When a person dies without leaving any will and has no legal heirs.
  • “Lapse”: When a right or interest in a property is terminated (e.g., a company dissolves).
  • “Bona Vacantia”: Literally “vacant goods”; any other property that has no owner (e.g., treasure found in a field with no traceable owner).
• The Rule: If such ownerless property is physically located inside a state’s borders, it becomes the property of the State government. In all other cases (e.g., property in a Union Territory, or in the ocean), it becomes the property of the Union government.
• Real-World Example: A wealthy individual dies in Pune, Maharashtra. A court search finds they have absolutely no will and no living relatives anywhere. Their entire estate (house, bank accounts, car) passes to the Government of Maharashtra by “escheat.”

Article 297: Things of value within territorial waters or continental shelf and resources of the exclusive economic zone to vest in the Union.

• Clause (1):
  • Plain English: All lands, minerals, and “things of value” (like shipwrecks, treasure) that are under the ocean within India’s maritime zones (territorial waters, continental shelf, or Exclusive Economic Zone – EEZ) belong 100% to the Union of India.
• Clause (2):
  • Plain English: This extends the rule. All other resources in the Exclusive Economic Zone (which extends 200 nautical miles from the coast) also belong exclusively to the Union.
  • Real-World Example: A coastal state like Tamil Nadu cannot claim ownership of the oil and natural gas found 50 miles off its coast in the ocean. Under this article, that oil and gas (minerals), as well as the fish and other marine life (resources) in that zone, are the property of the Union government, which has the exclusive right to license and tax them.
• Clause (3):
  • Plain English: Parliament (and not the states) has the power to pass a law to define the exact limits (how many miles) of India’s territorial waters, continental shelf, and EEZ.
  • Real-World Example: Parliament passed the “Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976” which formally sets these limits in accordance with international law (like the UN Convention on the Law of the Sea).

Article 298: Power to carry on trade, etc.

• Plain English: This article gives the executive branch of the Union and each State the clear power to:
  1. Carry on any trade or business.
  2. Acquire, hold, and sell property.
  3. Make contracts for any purpose.
• Proviso (a): If the Union wants to run a business in a state (on a subject not on the Union list), it must follow the state’s laws.
• Proviso (b): If a State wants to run a business (on a subject not on the State list), it must follow Parliament’s laws.
• Real-World Example: This article is the constitutional basis for all Public Sector Undertakings (PSUs). The Union government’s power to run “Indian Oil” (a business) or “BHEL” (a manufacturing unit) comes from here. Similarly, a state government’s power to run its “State Road Transport Corporation” (a business) also comes from this article.

Article 299: Contracts.

• Clause (1):
  • Plain English: This sets the formal rules for how government contracts are made.
    1. All contracts by the central government must be stated to be made “by the President.”
    2. All contracts by a state government must be stated to be made “by the Governor.”
    3. They must be signed by a public officer who has been specifically authorized by the President or Governor to do so.
  • Real-World Example: The Ministry of Defence issues a tender to buy new jets. The final contract will not be signed by the President. It will be signed by an authorized “Joint Secretary” or “Director” in the ministry, and the contract’s opening line will state: “This contract is made… by the President of India (acting through the Ministry of Defence)…”
• Clause (2):
  • Plain English: This is a crucial personal immunity clause. The President or Governor is never personally liable for any government contract.
  • More importantly, the officer (e.g., the Joint Secretary) who physically signs the contract is also not personally liable if the government breaches the contract. The lawsuit must be against the government itself (i.e., the “Union of India”), not the individual officer.
  • Real-World Example: The government (through a signed contract) fails to pay a road builder. The builder cannot sue the specific IAS officer who signed the contract and try to seize their personal house or car. The builder can only sue the “State of Maharashtra” to recover the money.

Article 300: Suits and proceedings.

• Clause (1):
  • Plain English: This article gives the government its official legal name for use in court.
    • To sue or be sued, the central government is called: “The Union of India.”
    • To sue or be sued, a state government is called: “The State of [Name]” (e.g., “The State of Kerala”).
  • The “like cases” rule: This clause also states that the government can be sued “in the like cases” as the British “Dominion of India” or a “Province” could have been sued before 1950. This has been interpreted by courts to mean that the government cannot be sued for its “sovereign functions” (like defence or policing) but can be sued for its “non-sovereign functions” (like running a business or maintaining a road).
• Clause (2):
  • Plain English: This is a transitional clause for lawsuits that were already in progress on Jan 26, 1950. If a case was filed against the “Dominion of India,” the court just substituted the name “Union of India.” If it was against the “Province of Bengal,” the court substituted the name “State of West Bengal.”