Categories: Economy

The main Source of revenue for state government in India

The main source of revenue for state government in India– There are two main sources from where the State government generates revenue. These 2 sources are tax revenues and non-tax revenues. In tax revenues, state governments and local authorities generate revenue from the direct and indirect taxes paid by the consumers. In non-tax revenues state government and local authorities earn revenue from various sources other than tax. These include fees, income from government undertakings, income from state-owned properties, royalty, grants in aid, etc.


The major source of income for state government and local authorities is revenue generated from various taxes. Few of them are

  • STAMP DUTY– Stamp duty is the major source of revenue for the majority of the states. Stamp duty is the duty which is charged on the transfer and sale of house property.
  • STATE EXCISE DUTY– State excise duty is the duty charged on various alcoholic products, narcotics, etc. It is a very major source of revenue for state governments on alcoholic products. It helps in increasing the tax revenues of the states to a higher level.
  • MOTOR VEHICLE TAX– Motor vehicle tax is the tax levied on each motor vehicle under State Motor Vehicles Taxation Act. Each state government has the power to increase or decrease the rates of taxes from time to time whenever required.
  • GIFT TAX– Gift tax is the tax charged on the transfer of gifts. The gift tax also helps in generating revenue for the state government.
  • GOODS AND SERVICE TAX– Goods and service tax was introduced in 2017 subsuming various taxes in itself to remove cascading effect. GST is charged on sale, transfer of goods and services. Majorly it is imposed on the supply of goods and services provided to consumers. Two types of GST generate revenue for state government.
  • STATE GOODS AND SERVICE TAX (SGST)– When goods are sold, and services are provided in the same state that is intrastate supply it attracts the chargeability of State Goods and Service Tax(SGST).

This is one of the most major source of revenue for state government.

  • INTEGRATED GOODS AND SERVICE TAX (IGST)– IGST is charged when the goods are sold and services are provided by the supplier from one state to another state. This is called inter state supply where goods are supplied from one state to another. This is helpful to the state government to make high revenue.



Non-tax Revenue refers to those sources of revenue that are outside the purview of what is levied on wealth, income, or property i.e. tax revenue.  States that are rich in natural resources like mineral, ores generate non-tax revenues from non-tax sources like mining minerals and metals, etc. Other main sources of generating income are Interest received, Dividends, and Profits from State Public Sector Enterprises.

Non-tax revenues are also generated from various services provided by the government to the general public like electricity, water, gas supply, etc.

Also, the income that the govt earns through its general services like irrigation, power distribution, insurance, banking services, community, etc also makes the part of government business in generating revenues.

Also, the money that is earned by the government in the form of penalties, fees, fines, etc. form part of non-tax revenues. Also, for state governments, the grants provided by the central government may be the source of non-tax revenues. Non-tax revenue sources have been the major sources for the state government to boost up their revenues but less than tax revenues.

Faiz & Mohtasham

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