Which one of the following statements regarding the levying, collecting and distribution of Income Tax is correct?

Correct Option

As per Article 270 of the Indian Constitution, income tax (excluding agricultural income) is levied and collected by the Union government. The proceeds from this tax are then distributed between the Union and the States based on the recommendations of the Finance Commission. However, any surcharge levied on income tax is retained exclusively by the Union and is not shared with the States.

Incorrect Options

• Option (b): This statement is incorrect. The Union government does not retain all the proceeds of income tax. A significant portion is shared with the states as part of the divisible pool, as stipulated by the Constitution.
• Option (c): This statement is incorrect. While income tax proceeds are distributed among the states, the entire amount is not distributed. A portion is retained by the Union, and the distribution to states is based on the Finance Commission's recommendations, not the entire proceeds.
• Option (d): This statement is incorrect. Surcharge levied on income tax is specifically excluded from the divisible pool of taxes and is retained solely by the Union government. Therefore, it is not shared between the Union and the states.